Playtika Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 10 speakers on the call.

Operator

After the speakers' presentation, there will be a Q and A session. You would then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. Now, I would like to hand the conference over to our speaker today, Tay Li, SVP of Corporate Finance and Investor Relations, please go ahead.

Speaker 1

Welcome, everyone, and thank you for joining us today for the Q1 2023 earnings call for Plitica Holding Corp. Joining me on the call today are Robert Antical, Co Founder and CEO of Playtecha and Craig Abrams, Playtecha's President and Chief Financial Officer. I'd like to remind you that today's discussion may contain forward looking statements, including, but not limited to, the company's anticipated future revenue and operating performance. These statements and other comments are not a guarantee of future performance, but rather are subject to risks and uncertainties, some of which are beyond our control. These forward looking statements apply as of today, and you should not rely on them as representing our views in the future.

Speaker 1

We undertake no obligation to update these statements after this call. We will also post our prepared remarks immediately following the call. With that, I will now turn the call over to Robert.

Speaker 2

Good morning and thank you everyone for joining our call today. Building on the momentum from last quarter, we achieved sequential growth across both casual and social casino teams title. I'm proud of our incredible global talent for our achievements and for setting the pace for the rest of the year. We are on track to meet our financial guidance provided on our last quarter recall and we are excited about our content roadmap Slide this year. Overall, we generate revenues of $656,200,000 And credit adjusted EBITDA of $222,700,000 Several months ago, we took meaningful steps To further focus on our core strength of life operation, our leadership position In mobile gaming, we've built on the best in class live game operation services, which enable us to provide Innovate and personalized content to our players at optimal point in their game journeys.

Speaker 2

This quarter, we took positive strides towards further developing and implementing our AI technology in our digital studio. Our popularity technology platform combined with evergreen nature of our titles has allowed us Successfully drive engagement and monetization year after year. Our technical capabilities Allow us to deliver an improvement, more personalized experience to our loyal community And I truly believe there is a lot of more growth potential across all our games. To summarize, I am confident we will strengthen our position within industry this year and that we will outperform our peers I will now turn it over to Craig.

Speaker 3

Thank you, Robert. We are pleased with our performance to start the year. We saw continued positive revenue trends that we started to see in Q4 across all of our games. Our top 9 games Grew revenue per day sequentially quarter over quarter. In addition, we are starting to see the flow through from our focus on efficiency And changes that we have made to how we allocate capital.

Speaker 3

For the quarter, we generated $656,200,000 of revenue, Up 4% sequentially and down 3.1% year over year. Q4 last year marked a stabilization point for our portfolio We made the strategic decision to shift more of our user acquisition spend to our casual growth titles. Our focus On higher margin growth is evidenced in our financials this quarter, generating strong credit adjusted EBITDA. Credit adjusted EBITDA $222,700,000 up 9.9% sequentially and 12.8% year over year. Our credit adjusted EBITDA margin was 33.9% compared to 32.1% in Q4 2022 And 29.2% in Q1 2022.

Speaker 3

Net income was $84,100,000 Down 3.9% sequentially and up 1.1% year over year. We generated $151,500,000 of revenue Our direct to consumer platform, up 0.9% sequentially and down 0.6% year over year. Our direct to consumer platform is comprised of all of our social casino theme titles and Bingo Blitz, our only casual title on the platform. As a result, direct to consumer platform revenues were slightly down year over year given the decline in our social casino theme titles, offset by strength in Bingo Blitz. Looking ahead, we're excited to introduce Salsa Gran Harvest and June's journey to the platform starting in the second half of twenty twenty three.

Speaker 3

Turning now to our business results for the quarter. Revenue across our casual theme games grew 7.1% Our casual games now represent 56.3 percent of total revenue. Bingo Blitz revenue $159,200,000 up 2.6% sequentially and up 13% year over year. We are extremely proud of our Bingo Blitz team for another quarter of record revenue. Bingo Blitz is a game that we acquired over a decade ago It is still one of our fastest growing titles.

Speaker 3

In the quarter, we saw strong results from content packs and promotional features surrounding the Super Bowl, Valentine's Day and St. Patrick's Day celebrations. We also introduced new mini games and rolled out the new pets feature, which has received positive feedback from our players. We experienced tangible benefits from Digital Studios AI capabilities in Bingo Blitz. Which led to an uplift in revenue for the studio.

Speaker 3

The success of this program has encouraged us to roll out these capabilities to additional studios this year. Solid Thread Harvest revenue was $85,500,000 up 17.4% sequentially and 29% year over year. We are encouraged by this level of growth at such a large scale studio. On our last call, we spoke about the strong momentum That we're seeing in Solitaire. This past quarter, we introduced changes into the game, giving our players expanded game mode selection, which increased player engagement.

Speaker 3

In addition, we increased the number of levels by over 3 times, driving retention and improving satisfaction amongst our community of players. Finally, we introduced our biggest meta feature to date with the new farm that is helping increase player engagement. Salter Grand Harvest is a game that we acquired over 4 years ago The continued success of this franchise is a testament to our proven capability to drive meaningful organic revenue growth. Shifting to our social casino themed games. Social casino themed games revenue was up 0.3% sequentially and down 11% year over year.

Speaker 3

The year over year decline was driven primarily by lower Results in Slottomania. Slottomania revenue was $146,600,000 down 1.7% sequentially And 12.1 percent year over year. From Q3 2022 to Q4 2022, Slatomania's revenue per day declined by 0.6%. From Q4 2022 to Q1 2023, Revenue per day increased by 0.4%. We are encouraged to see Slottomania revenue stabilize for the 2nd consecutive quarter And we're pleased to see the positive trends in average daily paying users in the studio.

Speaker 3

Turning now to specific line items in our P and L for the Q1, Cost of revenue decreased 0.6% year over year and operating expenses decreased 13.9% year over year. R and D decreased by 9.1% year over year. The lower R and D expenses were largely driven by the reduction in force that we announced at the end of the 4th quarter. Sales and marketing decreased by 20% year over year. Like last quarter, savings in sales and marketing In addition, we had savings driven by the reduction in force.

Speaker 3

G and A expenses decreased by 6.7% year over year. This was largely due to an increased focus on cost reduction across the organization that we began to implement in the first half of twenty twenty two. As of March 31, we had approximately $767,200,000 in cash and cash equivalents. Looking at our operational metrics, Average DPU increased 4.2% sequentially and 0.9% year over year to 326,000. Average DAU increased 3.4% sequentially and decreased 9.9% year over year to 9,100,000 ARPDAU increased 2.6% sequentially and 8.1% year over year to $0.80 Finally, We are reaffirming our full year guidance to deliver full year revenue in the range of $2,570,000,000 to $2,620,000,000 And credit adjusted EBITDA in the range of $805,000,000 to $830,000,000 We continue to expect capital expenditures

Operator

Thank you. And at this time, we will conduct the Q and A session. Our first question comes from Stephen Ju from Credit Suisse. Please go ahead.

Speaker 4

All right. Thank you. So Robert and Craig, so can you update us on your stance toward new game development right now and how that might And also, talk about your ongoing M and A efforts. It seems like it's ongoing Difficult environment, particularly for the smaller studios. So are you seeing an increased number of assets come up for sale?

Speaker 4

Thank you.

Speaker 2

So thank you for the question. Regarding first, regarding the M and A, We see today more opportunities coming to the market. As we said last year, the market is going to be tough For new players, for small players and the companies that will have an issue with and like understanding with the operation We'll find ourselves depending on the marketing effort. And if you depend on marketing effort, it's really hard to grow our business. So we as a company that leading the operations in the gaming industry, this is a big advantage for us to help small companies To grow the business.

Speaker 2

So yes, we see more opportunities in the market. We see more companies approaching us And we think that this year is going to be very positive year. Regarding new games, as we said last year, We decided to focus of investing in startups, investing in the games that we are promising, Less dependent on the internal developing of new games, we believe this is the right approach to a company like Playtica Until now, we see very good results in this direction. Thank you.

Operator

All right, one moment for our next question. Our next question comes from Matt Kost from Morgan Stanley. Please go ahead.

Speaker 5

Hi, everybody. Thanks for taking the questions. I have 2. The first is just on the stabilization that you're seeing with Slovenia and I guess With the casino portfolio more broadly, can you just give a little more detail about what's driving that and sort of your view on how sustainable that reacceleration is from here? Second question is just about generative AI.

Speaker 5

I was wondering if you could talk a little bit about some of the opportunities that you have to drive efficiencies using those tools, Also are there any risks for your business that you would highlight as those tools proliferate? Thank you.

Speaker 2

So thanks for the question. So regarding the Slutomania, we said I think 2 quarters ago that we have a target and now we're starting to stabilize Slutomania And actually we did very well in the last two quarters, especially in this quarter. I think the different was our approach, we are focusing at the core games, Well, focusing on the thing that's really important to the players, we are bringing more paying users to the circles of paying users in Playtica. It's working very well for us. We are very optimistic about the future and then I think we will keep seeing a SlotoMania and Not only for the domain, the social casino or teams games stabilize and we are even optimistic of growing them.

Speaker 2

What was the second question?

Speaker 5

Hi, everyone. The question is around gender and AI.

Speaker 2

So as you know, we are investing in AI already a few years. We always believe in AI. Today, everyone is speaking about AI and become like a buzzword, but Playtech always believed in this and our first Investment was around 2017, 2018. We are happy to announce that I can say in this quarter we see Very good results, especially in Bingo Blitz. We saw the growth of Bingo Blitz.

Speaker 2

We saw what's happening with the game that, as Craig We launched this game, we acquired this game 10 years ago and with the help of AI, we see A very promising growth and by the way, we're going to take this learning and this experience to our guests and AI is here to stay and AI is not going I was saying AI is not going to replace employees, it's going to help them to grow the business With less mistakes, with more promising things and for us, we are not looking at efficiency, we're looking at growth right now with the All around, they are our

Speaker 5

Jigetel Studios. Great. Thank you.

Operator

All right. Thank you. Our next question comes from Douglas Krotz from Cowen and Company. Please go ahead.

Speaker 4

Hey, thanks.

Speaker 6

If I just take your Q1 results and annualize them, I'm a touch above the top end of your guidance range on revenue and pretty significantly above EBITDA, I understand it's early in the year, but is there anything that you've seen in kind of early Q2 This suggests to you that your run rate you achieved in Q1 is slowing down and or are you guys looking at any sort of increase in your cost base as the year goes on? Thank you.

Speaker 3

Hey, Doug, thanks for the question. So in terms of our guidance, we just gave guidance just a couple of months ago, as part of Reporting for the Q4 and obviously we executed very well in terms of sequential growth with 9 Our top titles are growing sequentially per day. I feel very good about where we are, but it is still early in the year. And so I think Given the macro environment, felt it was best to keep guidance there on top line. I think in terms of costs and expenses, we're looking at Opportunities to ramp marketing throughout the year as well as some expenses are getting deferred to later in the year.

Speaker 3

So I don't think

Operator

Our next question comes from Aaron Lee from Macquarie. Please go ahead.

Speaker 7

Hi, thanks for taking my question and congratulations on the results. Just wanted to there's a nice pickup in the DAUs and

Speaker 3

Sure. So we don't discuss kind of out of quarter results. I would say that we performed well throughout the quarter in terms of Q1. We have been focused, as we've talked about on prior calls on DPU. DPU is the best metric for us in terms of monitoring the health of our user base.

Speaker 3

And Q1 typically has higher marketing spend, and so you will see some top of the funnel growing as a result, but We continue to focus on live ops and conversion and driving that TPU number going forward.

Speaker 1

Got

Speaker 7

you. Thanks. And just in terms of macro and the health of the consumer, can you talk about what sort of macro impact you might be seeing on your players and how that's Changed in recent months, obviously, the Q1 results were very nice. Does it seem like you're still fighting against macro or has that improved a bit? Thank you.

Speaker 3

I think what we've seen since kind of middle of Q4 last year is that the environment has been doing well and we see kind of a healthy environment for mobile gaming. And Obviously, it's represented in our results. And so given last year, we had 9 titles in the top 100. I think we have a very good sense of the health of the overall mobile gaming System and feels pretty good right now.

Speaker 7

Okay, great. Thank you very much.

Operator

Our next question comes from Eric Holder from Roth MKM. Please go ahead.

Speaker 5

Thank you and good morning. Craig, just sort of looking at your expenses, R and D has come way down as You've taken some costs out of the equation. I assume that's all people costs. As you look at how you're staffed across Your studios and corporate, is that $102,000,000 sort of a relatively stable number you see going forward or Will that increase as the year progresses? What can

Speaker 2

you tell us about that?

Speaker 3

I think from I guess, what our comment is from a headcount We feel like things should be pretty consistent where we are. We obviously made a difficult decision last year to make some changes. We focus on efficiency. Now we're seeing more efficient organization and one that is able to make quick decisions and move quickly. And so we feel good about The direction we're headed and feel the expense structure is in a good place.

Speaker 5

Okay. And just as a quick follow-up, looking at your CapEx was quite low in the Q1. Can you maybe talk about how That ramps as we progress through the year to get to your $115,000,000 $120,000,000 outlook?

Speaker 3

Sure. So it's just timing of when purchases were made. So we still expect it to be in the range of guidance, But nothing specific from quarter to quarter that we're going to provide.

Speaker 2

Okay. Thank you. You got it.

Operator

Our next question comes from Colin Sebastian from Baird. Please go ahead.

Speaker 8

Hi, good morning. This is Reese on for Colin. Thanks for taking our questions. I was just curious if You guys could provide an update on the localization strategy. And then another question is, how are you guys thinking about kind of the future The mobile landscape potentially as Google makes changes next year.

Speaker 8

So yes, it would be great to hear that. Thanks.

Speaker 3

Sure. So I'll take localization and then Nir, our CMO, will talk about the broader landscape in terms of Mobile advertising. In terms of localization, we continue to see opportunities to localize our games in different markets. We just had some successful campaigns with Bingo Blitz in Europe and we're looking at some other opportunities as well and some other jurisdictions. So I think we keep seeing that leveraging our 360 approach with television combined with performance It's working well as we launch in these new markets and changes in local CRM as well as local language is making a difference.

Speaker 3

So we'll continue to push on that

Speaker 9

Hey, guys. Nir Kochak, Playtech CMO. So regarding, I would say, the private On Android, so I think that we learn a lot from obviously from the IDFA. We have a very close relationship with Google. They're a strategic partner of us.

Speaker 9

So I assume that most of the things that we have learned, we can implement in the new area, and we are working with them step by step to be ready whatever they

Speaker 5

will come. Thanks.

Operator

Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead.

Speaker 4

Thanks so much for taking the questions. Maybe if I could get 2 in. First, I know you talked about AI broadly and the investments you've made over a number of years. Can you talk a little bit about how that might factor into long term content and game creation costs? And how to think about the potential to drive efficiencies on that side of the business over the medium to long term?

Speaker 4

And then second, always interested to hear any updated thoughts on capital allocation and how you guys are thinking about the broader M and A landscape out there in terms of potentially allocating capital against inorganic growth? Thanks so much.

Speaker 2

Cool. Thank you. I will answer regarding the AI and Craig will take the M and A. So As I said in the beginning of the call, we always believe in AI and it took us time to really understand how to use this Magnificent, Tun. I think the first implement and the first effect that we see from working with AI is More optimization of our current feature and current product, because we need to remember the product that we developed 5, 6, 7 years ago in our games and now with the AI tools, we can optimize it much better to do segmentation, To understand how to provide this product to the players, to learn from this, to be more ready for new players that entering the game.

Speaker 2

And I think this is a very, very big change in actually how we're thinking of building a product from scratch Changing how we are thinking to approach to a customer, it's a game changer, I can say. But Steve, there is a lot of work to do. And the good news for Playtech is that we are using this really in one game and we see And it's going to be implemented in all our games and it's a very big key success in our future.

Speaker 3

Hey, Eric, it's Craig. In terms of capital allocation, I think we're pretty consistent with our messaging over the last couple Calls in terms of M and A being an area of focus and priority for us, especially given the changes we made in terms of our pipeline and new games, M and A continues to be a core part of our strategy in terms of bringing on new franchises. I know we've talked about it earlier, but I think The additional recent consolidation in the industry just plays into the fact that mobile gaming entertainment is one of the most Attractive categories within the broader entertainment landscape and we expect consolidation to continue. And so with that, I think there's going to be opportunities

Operator

Our next question comes from Franco Granda from D. A. Davidson, please go ahead.

Speaker 5

Yes. Thank you for letting me ask a couple of questions here. Craig, you've pointed out the success you're seeing in shifting more of your year ahead budget over to your casual growth titles. Can you perhaps talk a little bit more about your own U. S.

Speaker 5

Practices in terms of what is working, what is not? And What kind of return on ad spend assumptions you have embedded into the guide for the year? And then for my second question, How should we think about the mix of online versus online marketing for this year? Thanks.

Speaker 3

Sure. So I would say broadly, we're investing in the titles where we see the most potential for future growth and we have the best return on ad spend. And the 3 fastest growing titles in the portfolio are Bingo Blitz, Salted Grand Harvest and June's Journey. And so those titles are all seeing Increased budgets associated with that. I think in terms of the tactical specifics, we just don't share that publicly.

Speaker 3

But in terms of the types of things we're doing, you can see some of the efforts on TV and then that's backed up by continued performance marketing efforts. And so combined with localization and opportunities to bring our games to new markets as well. So I think it's consistent with previous strategy. I just think we're leaning in more towards our biggest and fastest growing titles. And we're constantly evaluating as we've made product changes Throughout the rest of the portfolio, opportunities to ramp marketing there as well for growth.

Speaker 5

All right. Thank you. All

Operator

right. Thank you. 1 minute. All right. And our last question comes from Omar DeSouki from Bank of America.

Operator

Please go ahead.

Speaker 1

Hi. Thanks for fitting me in. So I'm happy to hear that Bingo Blitz It has improved, it seems like partly because of the AI technology. And I wanted to double click into that. We've had a couple of questions on AI on this call so far.

Speaker 1

But I Models AI models that were recently released or AI models that have been around for a long time And that you just started to use them. And when I say recently released, I'm really talking about the ones that were released by OpenAI and Have been discussed very frequently in the media and in the technology ecosystem.

Speaker 3

No. So I

Speaker 2

think just to be I guess

Speaker 3

to give more clarity, this is all tied to our digital studio efforts. Our digital studio efforts are providing tools to our studios to help improve their games and make better decisions. And so in terms of the product feature we referenced in the script as it relates to Bingo Blitz is really about using segments to really personalize the experience to our players and that personalization and better segmentation tools Really helped that game. I don't think we'll I don't have more technical answers in terms of specifically what did it, but this is all part of our broad digital studio efforts, which is So then we've been developing internally for some time.

Speaker 2

But I want to add something and to make things clear. Our growth in Bingo Bleed It's not coming only from the AI capabilities and AI effort. It's helping us. The growth is coming from an amazing job that the teams The new product and the new feature they are launching. So of course, we are speaking about things that can help us grow in the future, but it's To make things clear, this is not what is growing dramatically the growth of the business.

Speaker 2

It's helping the growth. Thank you.

Speaker 1

Sure. Thanks. And so have you has Playtecha started using the large language models and the models that OpenAI has commercialized?

Speaker 3

Yes. I don't it's not something I can follow-up with that. It's not something that I'm aware of in terms of

Operator

Thank you all for participating in today's conference call. This does conclude the program. You may now

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