PLAYSTUDIOS Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 9, 2023

There are 8 speakers on the call.

Operator

Welcome to the Playstudios First 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. Please note this conference is being recorded. I will now turn the conference over to your host, Samir Jain, Head of Treasury and Investor Relations.

Operator

You may begin.

Speaker 1

Thank you, operator. Good afternoon, and thank you for joining us for PLAY Studios' Q1 2023 earnings call. Joining me on the call today are our Chairman and CEO, Andrew 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. I would like to remind everyone that we will discuss certain non GAAP and answer session. 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 to comparable GAAP measures will be provided in our Q1 earnings release and in our SEC filings. With that, I'll pass the call to Andrew.

Speaker 2

Thank you, Sameer. Welcome to our Q1 2023 earnings call. It's been an eventful start to the year, and we're excited to share our progress. Playstudios has a 12 year history of developing and publishing free to play mobile games. Portfolio of 17 games, along with our industry only loyalty program that enables players to play the games they love, while earning real world benefits.

Speaker 2

Our strong operating performance is a result of our unique strategy, which we believe will continue to drive our growth. While we have achieved meaningful success, we are early in our journey, and we believe there is substantial growth ahead. We are constantly evaluating new opportunities to Our revenue and adjusted EBITDA for the quarter were ahead of both Street and Company expectations as we demonstrated our capacity to balance top line growth with margin and profit expansion. Adjusted EBITDA margins grew 9.40 basis points from year ago levels and 7.10 basis points from last quarter. Margins have been steadily expanding over recent quarters, and we see a clear path to achieving rates that are in line with our industry peers.

Speaker 2

I want to emphasize that our adjusted EBITDA growth is happening in conjunction with revenue growth, a rare distinction in the current environment. We will remain focused on optimizing our performance and further improving our return on invested capital. Margin gains are being driven by cost, discipline and efficiencies. As part of our efforts to further these goals, we recently initiated A comprehensive restructuring plan that called for the consolidation of several studios and a 10% reduction in our global headcount. We expect to see further benefits from these changes later this year.

Speaker 2

I'd like to emphasize that we remain committed to our core portfolio and we'll continue to invest in these games. Our focus on high quality content and innovative gameplay remains a key differentiator, And we're confident that our ongoing investment in these areas will continue to drive revenue growth and profitability. Our portfolio of growth games remains a key driver of our business, And we are very encouraged by the quarter's results. Tetris, in particular, continues to perform very well, growing its user base and revenues. We are also seeing increased engagement following the launch of the Tetris movie on Apple Plus, which has introduced more players to the game.

Speaker 2

In addition to Tetris, other growth games such as My Vegas Bingo, MGM Slots and our Brainium Collection are also performing well. On the topic of future growth drivers, Play Awards has also made notable progress in the quarter. We remain committed to creating a best in class loyalty platform with Play Awards, which we believe is a unique differentiator for our business. In the quarter, we relaunched a rewards partnership with Norwegian Cruise Line and added a new property from Gateway Casinos, which helped us achieve a 2.5% increase in unique rewards from the year ago period. Reward purchases at quarter end were $440,000 and had a retail value of over $27,000,000 Looking ahead, we plan to integrate PLAY Awards into our casual game portfolio by year end, which we believe will provide exposure to 3,000,000 daily average users.

Speaker 2

We see this as a springboard for a successful launch of our loyalty as a service offering. As we've emphasized in the past, our ultimate goal is to evolve PLAY Awards into a fully autonomous, self sufficient and profitable business. Given this quarter's strong results, we are raising our full year guidance. It is worth noting that we're raising our outlook At a time when industry and economic challenges are high, we believe that our current momentum, coupled with the collection of internal initiatives underway, will sustain our growth despite the secular challenges. With that said, our long term focus remains on executing our strategic initiatives, Investing in our core business and creating long term value for our shareholders.

Speaker 2

We're confident in our ability to deliver sustainable growth and profitability, And we look forward to sharing our progress with you in the coming quarters. In closing, I want to reaffirm how encouraged I am about our Q1 performance and excited about our future potential. Across all of our studios, teams and products, we're seeing signs of improvement, And we believe we have advanced our position as the leaders in rewarded play. Our unique business model, combined with operating discipline, has resulted in strong adjusted EBITDA margins that we believe can be in line with industry peers. Lastly, We have a strong balance sheet and cash position, enabling us to pursue a range of investment opportunities, including organic product initiatives, additional M and A targets, along with stock repurchases, all of which will be focused on further increasing return on invested capital.

Speaker 2

I I'll now hand things over to Scott for a more comprehensive review of our results. Scott?

Speaker 3

Good afternoon, everyone. During the quarter, we reported revenue of $80,100,000 a significant increase from the $70,500,000 we reported in the same quarter last year. It's important to note that even when we adjust for the impact of Brainium, our revenue was still up year over year. This is a testament to the company wide growth we have experienced With particular momentum in our collection of growth games, adjusted EBITDA during the quarter was $17,800,000 up 96% from year ago results. The growth was primarily driven by the addition of Brainium, higher revenues overall and lower UA spend.

Speaker 3

Adjusted EBITDA margins were 22.2%, up 700 basis points from last quarter and 9.30 basis points from a year ago. Expense ratios were lower across the board and savings were broad based. The higher mix of advertising revenues from Brainium and Tetris also lifted margins, which is expected to continue throughout the year. While we are working to increase advertising in other games, we are early in the process and don't expect a material impact this year. We remain focused on managing costs, while still investing in growth opportunities.

Speaker 3

During the quarter, we initiated a comprehensive restructuring plan, which called for of studios and an approximately 10% net reduction in our global headcount. We expect these changes to drive further cost savings and efficiency gains over time. DAU, daily active users and MAU, monthly active users were $3,600,000 $13,100,000 respectively, which represented a 129 percent 89% increase over the prior year quarter. However, when adjusted for BRAINIUM, DAU was flat with year ago levels, while MAU was up nearly 10%. This performance is particularly notable given the broadly negative industry trends.

Speaker 3

ARPDAU average revenue per daily active user was down due to the increasing weight of Tetris and Brainium, which are advertising driven businesses. However, when adjusted for these games, ARPDAU increased by 11% on a year over year basis. Games in our growth portfolio, MyVegas Bingo, MGM Slots and Tetris all saw healthy ARPDAU gains. Turning to Play awards, the platform made significant progress during the quarter With available rewards growing by 2.5% year over year to 534 unique rewards. 440,000 rewards were purchased during the quarter at a retail value of over $27,000,000 The program has partnered with more than 100 brands, including InterContinental Hotels, AMC Theatres, Royal Caribbean Cruises and MGM Resorts.

Speaker 3

Play awards remains a key imperative of ours and we continue to be pleased with the program's performance and growth. Our financial position remains strong with no debt, dollars 127,000,000 of cash and full availability of our $81,000,000 revolver. We have continued to repurchase shares under our buyback program and believe buying our stock is an excellent use of our capital. We will continue to evaluate M and A opportunities as well as share repurchases. As evidenced by the Tetris and Brainium transactions, The company will move quickly when the right opportunity arises.

Speaker 3

Looking ahead, we are confident in our ability to drive continued revenue growth and improve margins. We are very pleased with our strong performance this quarter and remain focused on driving growth, while also managing costs and improving margins. As Andrew mentioned earlier, We are raising our outlook for the year to reflect this enthusiasm. We estimate that revenues will now be in the range of $305,000,000 to $325,000,000 Up from the previous guidance of $300,000,000 to $320,000,000 and adjusted EBITDA will be in the range of $50,000,000 to $60,000,000 Up from the prior guidance of $47,500,000 to $52,500,000 the higher margins reflect efficiencies, progress in new and developing games and the inclusion of Brainium for the full year. The long term impact of the corporate restructuring is still unknown, but we remain confident it will be a driver of both growth and margin expansion.

Speaker 3

Finally, the guidance assumes continued industry and economic stress, which we have factored into our forecast. I'll now turn the call back to Andrew for some closing remarks.

Speaker 2

Thank you, Scott. Before we end our prepared remarks and open the call for questions. I'd like to touch on a few highlights. We had an excellent quarter with revenue and adjusted EBITDA Well above our and Street expectations, our business is growing across the board and doing so in a more profitable way. Adjusted EBITDA margins in the quarter expanded by over 900 basis points versus a year ago.

Speaker 2

Our efforts around efficiencies and cost containment are working. We are early in the implementation of our restructuring plan and still see numerous opportunities ahead. Tetris continues to perform strongly is building momentum with the release of the Tetris movie at the end of March. We remain enthusiastic about our entire portfolio of growth games and expect them to contribute meaningfully to our 2023 performance. Play Awards was integrated into Tetris at the end of the quarter and remains on track to be added to Brainium's games by year end.

Speaker 2

We remain committed to expanding the reach of Play Awards through third party adoption of our loyalty as a service platform. On the back of this momentum, we are raising our 2023 guidance. At the midpoint of our projections, year over year revenue and adjusted EBITDA growth are forecasted to be 9% 44%, respectively. These gains are despite the continued economic and industry challenges. Finally, we continue to repurchase shares under our buyback program and believe our stock is underpriced and represents tremendous value.

Speaker 2

In closing, I'd like to share that in keeping with Playstudio's progressive and forward looking philosophy, this entire call was compiled using generative, AI, text to text and voice cloning tools. It's just one example that illustrates how we're taking full advantage of new technologies and finding exciting ways to apply AI practices throughout our company. With that, I'll turn it over to the operator to introduce the real members of our team. Operator, please open the lines.

Operator

Thank you. And at this time, we will be conducting a question and answer session. And our first question comes from the line of David Peng with Stifel. Please proceed with your question. Thanks for the question.

Operator

I was hoping to hear any key takeaways or learnings from the integration of Play Awards to Tetris. And separately, could you talk about the gross margin improvement that you saw in the quarter? And what are the drivers here? And how we should think about Gross margin for the remainder of the year? Thanks.

Speaker 4

Yes. Thank you, David. This is Andrew. So First of all, we did the integration of Play Awards into Tetris towards the end of this last quarter, so middle to end of the quarter. And Across the board, we saw pre meaningful growth with Tetris, but it was attributed in our view to a number of different factors, just one of them being the integration of Play Awards.

Speaker 4

So we're currently actively working on further qualifying and teasing out its impact, exclusive of The premiere of the movie and the just strong momentum that we were carrying organically followed with that product. So We'll speak to it a bit more specifically probably on our next call. As far as the gross margin improvement, that's More a function of the composition of revenue and the increase in advertising based revenue as an overall complement.

Operator

Great. Thanks.

Speaker 4

Yes. You're welcome.

Speaker 5

And our next question comes from

Operator

the line of Aaron Lee with Macquarie. Please proceed with your question.

Speaker 5

Hi, thanks for taking my question and congrats on the strong quarter.

Operator

Thank you.

Speaker 3

With regard to Tetris, can you just

Speaker 5

give some color around how trends looked especially around the lift from the Tetris movie and then The co promotional activity and how sustainable you expect that lift to be? Thanks.

Speaker 4

Yes. Thanks for the question. Look, we don't typically break out specific metrics by game. But what I can tell you is that over the course of really the past year, We've been making a lot of different optimizations and improvements to the Tetris product, which have helped it grow. We saw audience growth and revenue growth Through the back half of last year and that momentum continued into the Q1, there was definitely a rift and a bump that we saw as a result of The introduction of the premiere of the movie on Apple TV, which was great.

Speaker 4

We did a lot of really cool cross promotion and had a ton of support, which again helped us grow the audience. And so we as we sit here today, we continue to see growth. So I can't really speak to how sustainable the added lift is a result of the movie premiere, what that looks like And how long we can or should expect that to continue, but independent of that added lift, we were seeing pretty healthy growth. So And I don't see any reason why that should change in the relative near term.

Speaker 5

Got it. Thanks. That's very helpful. As a follow-up, can you just discuss the content licensing arrangement with IGT that you announced recently and some of the opportunities around that?

Speaker 4

Yes. So, we're excited about our new relationship with IGT. Obviously, real money gambling content or the games that for at least our casino products, the games that people are playing in Real world casinos are really well received. We've proven that out and that's been demonstrated in our economy product. And so to have now access to the IGT library of content and games that we can incorporate into our products, we think is going to be really well received by our players.

Speaker 4

So we're excited about that as a relationship and to get the content and games that people are finding and loving in the real world Into our products that they can now play remotely.

Speaker 5

Perfect. Thank you very much.

Speaker 6

Yes.

Speaker 5

And our next question comes from

Operator

the line of Ryan Sigdahl with Craig Hallum. Please proceed with your question.

Speaker 7

Good afternoon. This is Will on for Ryan. Thanks for taking our questions. Just a few for us here. Firstly, curious On your thoughts, this is a bit on the IGT partnership, but curious how you guys think about New in app content versus maybe the game mechanics overall?

Speaker 4

I understand the question. Our games are really very dynamic and organic. They continue to evolve constantly. I mean, every day, we are introducing new games, new features into most of our products. And so the IGT relationship and getting access to their game content allows us to further expand and broaden The content that we can introduce into our casino products, and it also allows us to introduce casino content that our players are familiar with from real world casinos.

Speaker 4

So both are benefits. As far as the mechanics of the games, it's certainly helpful that these are Proven games that have been very popular in the traditional real world casinos. So the underlying proposition and math and design and volatility of these experiences It's very proven as are the brands. So to be able to take proven game content and incorporate into our products, we think is positive.

Speaker 7

Great. And then as a quick follow-up, in terms of a timeline for the integration of Play Maybe throughout Branium, what should we, I guess, expect as far as cadence goes for integration?

Speaker 4

Yes, we're so those products are there's some core infrastructure that we have to put in place in order us to deliver our program into those products and we're doing that work now. And then there's a pretty broad portfolio So we've established some priorities and we'll start to see the introduction of our Play Awards program into some of those games By the end of this quarter, the early part of next. And then once we've kind of proven it out within the initial group of pilot products, Then we'll go ahead and expand across the balance of the portfolio.

Speaker 7

Great. Thanks, guys.

Speaker 4

Yes, you're welcome.

Speaker 5

And our next question comes from

Operator

the line of Omar DeSouki with Bank of America. Please proceed with your question.

Speaker 6

Hey, guys. This is Arthur on for Omar. Thanks for taking my question. So you guys mentioned that revenue was up year over year, excluding the contribution of Raynium. I'm just wondering if you could just comment on the trend of the core social casino portfolio, like how that looks year over year And sequentially.

Speaker 6

Then I have one follow-up question on Brainiac. Thank you.

Speaker 4

Yes. I mean, the year over year trends, They're down modestly sequentially quarter over quarter, fairly stable. So our understanding is that that's pretty consistent with generally where the markets trended for the core casino products. You said you had a follow on question?

Speaker 6

Yes. Understood. Thank you. So I think you guys previously put up like $22,000,000 revenue run rate forecast for Branim in 2022. I'm just wondering like in terms of your expectation, are you assuming that premium will grow Versus that 'twenty two like projected run rate in your sort of like 20 20 2 outlook?

Speaker 4

We do believe that there is growth potential across the Brannion portfolio. It's tough to predict, Particularly in light of just the broader macroeconomic backdrop and really not having any More comfort or visibility obviously into how things are going to play out here through the summer and the back half of the year. We're kind of comfortable with A more conservative assumption on Brain and its growth.

Speaker 6

Understood. Thank you very much guys.

Speaker 4

Yes. Thank you.

Operator

And we have reached the end of the question and answer session. I'll now turn the call back over to Andrew Pascal for closing remarks.

Speaker 4

Yes. Thank you. We appreciate everybody tuning in and taking the time to understand our performance in this past quarter. Of course, if you have any further questions, Always feel free to reach out to us directly, and we appreciate your time. Thanks, everybody.

Operator

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
PLAYSTUDIOS Q1 2023
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