PLAYSTUDIOS Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 7 speakers on the call.

Operator

Afternoon, everyone, and welcome to the Playstudios Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Sameer Jain, Head of Investor Relations and Treasurer.

Operator

Mr. Jain, you may begin.

Speaker 1

Thank you, operator. Good afternoon, and thank you for joining us for PLAY Studio's Q2 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. We will also discuss certain non GAAP 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 2nd quarter earnings release and in our SEC filings. With that, I'll pass the call to Andrew.

Speaker 2

Great. Thank you, Sameer, and welcome to our Q2 2020 Earlier today, we published a press release containing our financial results and commentary for the Q2 of fiscal year 2023. As always, our release contains considerable financial disclosures and management thoughts on topics we believe are pertinent to our company. I hope you've had a chance to read the release and if not, would encourage you to do so. Rather than rehash what is contained there, Scott and I will spend a few minutes Highlighting key developments and save the majority of today's time for your questions.

Speaker 2

We had another strong quarter topping analyst forecasts and showing material gains Before reaching margin parity with our peers is a primary goal of ours and something we'll continue to advance as we balance our focus on operational improvements with our ongoing investments and future growth. Our Play Games business division continues to benefit from the momentum in our growth portfolio, While our core business is trending in line with the industry as a whole, Tetris continues to be a standout. We remain excited about the collection of game initiatives we're pursuing. As I've shared on past calls, we continue to work diligently on optimizing the Tetris Prime product, while we invest in new core casual versions of this puzzle format. In addition, we're also making progress across the remainder of our growth portfolio and remain encouraged by the potential of these games.

Speaker 2

As for our Play Awards business division, we continue to evolve the core technologies, tools and services, which enable the growth and impact of our My VIP loyalty program. We've also been testing the waters with external game publishers to qualify their interest in our loyalty as a service solutions. As I've reinforced on prior calls, We are the pioneers in rewarded play and remain enthusiastic about the as yet untapped potential of this unique and valuable business opportunity. We continue to believe that the validation from 3rd parties can unlock an entirely new dimension of value, which we don't believe is fully reflected in our stock price today. I'll now turn the call over to Scott to provide some additional comments.

Speaker 2

Scott?

Speaker 3

Good afternoon, everyone. In addition to today's press release, our Form 10 Q will be filed shortly. As such, I'll add a few comments here, but would direct you to those filings for a comprehensive summary of the to quarter's results. Similar to our Q1, our higher adjusted EBITDA margins versus last year were primarily the result of the addition of Raynium, Higher overall revenues and lower UA spend. We do expect adjusted EBITDA margins to continue to be above prior year levels in the second half of the year.

Speaker 3

However, We do anticipate an increase in UA spending in the second half of the year in order to support our growth portfolio, and we also expect royalties as a percentage of revenue to increase, but still to be below prior year levels. Both DAU and MAU in the quarter were heavily skewed by the inclusion of Raynium, which we purchased in October of last year. Excluding BRAINIUM, both DAU and MAU were up double digit percentages versus a year ago, driven by the momentum of our growth portfolio. ARPDAU was down due to the impact of Tetris and Raynium, both of which are advertising driven games that generally reflect lower ARPDAU, but higher margins than our in app Adjusting for these advertising driven games, ARPDAU increased by approximately 8% on a year over year basis. Our financial position remains strong.

Speaker 3

We ended the quarter with approximately $128,000,000 in cash, no borrowings and full availability of our $81,000,000 revolver. We purchased $10,000,000 of shares during the quarter and have $30,000,000 remaining on our stock repurchase authorization. Finally, we are increasing our 2023 adjusted EBITDA guidance to a range of $55,000,000 to $60,000,000 versus the previous range of $50,000,000 to $60,000,000 Our 2023 revenue guidance of $305,000,000 to $325,000,000 remains unchanged. The guidance assumes an uptick in spending to support our growth games and continued industry and economic stress. I will now turn the call back to Andrew for some closing remarks.

Speaker 2

Thank you, Scott, and to everyone who has dialed in for today's call. We appreciate your interest and look forward to updating you on our progress in the coming months. As always, I want to close by thanking my colleagues, Fellow playmakers and partners that work tirelessly to help us advance our business, it's through their commitment and contributions that we're able to learn, adjust and grow. I'll now turn the call over to the operator to take your questions. Operator?

Operator

Thank you. Will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. Our first question is from Ryan Sigdahl with Craig Hallum Capital Group.

Operator

Please proceed with your question.

Speaker 4

Good afternoon, Andrew and Scott.

Speaker 2

Hey, Ryan. How are you?

Speaker 3

Hi. Good.

Speaker 4

Want to start with the guidance. So it implies kind of at the midpoint that revenue growth slows, Margins declined because you're going to spend more on UA. I guess, my head thinks if you spend more on UA, it should accelerate revenue growth. So I guess just help me Reconcile kind of the midpoint, so the revenue guidance and the decline in EBITDA margin?

Speaker 2

I mean, look, I'll offer kind of quick reaction and certainly Scott can weigh in as well. I think it's safe to say that We offered a range and we didn't tighten up the range from a revenue perspective because as we do start to lean into and invest in Some of the newer products that we have, we would certainly expect to see some increases in revenue. It's hard to predict at this stage. So We just felt that we would leave the band in the range of revenue guidance where it is, but felt a bit more comfortable tightening up that band from an EBITDA perspective. So I think your point is clear and generally agree with you, but just want to leave ourselves some flexibility.

Speaker 4

Sure. That makes sense. Curious how you think about Arkdale growth versus adding new users and maybe thinking more of the core games versus the new games you're going to launch, but competitors are clearly focused on the ARPDAU, but how do you think about the balance between those 2?

Speaker 2

Look, I mean, ARPDAU, Obviously, it's a function of audience scale and revenue. So if Products or companies are in a position where they have the benefit of being able to scale up their audience, which a lot obviously has been made of how difficult that is in the current environment. To be able to scale audience and ARPDAU at the same time is challenging, but can be achieved. So Assuming ARPDAU remains constant, well then clearly there are the opportunities to drive revenue by converting more of your audience Increasing the amount of value extract from the audience, so increases in both PPU and RPPU, which we focus on very intensely with our core products, The more mature games that have fairly stable audiences. So I would say going forward As we continue to lean into the new casual products in our portfolio and some of the newer products that we're going to be launching and scaling, Those are we're going to be increasing our audience.

Speaker 2

And so those players that do convert and spend, they'll be earlier in their lifecycle Spending, so the ARPPUs from that audience tend to be a bit smaller, which would blend down overall ARPPU and may also blend down ARPDAU. But over time, We would expect those cohorts to mature and to start monetizing much like the more mature older cohorts that we have, in which case We would expect to see that ARPDAU lift. So it's a bit of a tough question to answer because there's just so many factors that come into play when you're looking at ARPDAU. But hopefully that color helps.

Speaker 4

Yes. Nice job on the margins and execution guys. Good luck.

Speaker 2

Thank you, Ryan.

Operator

Thank you. Our next question is from David Karnovsky with JPMorgan, please proceed with your question. Hi, thank you. Wondering I mean, I know this will be in your 10 Q, but can you just let us know the relative contribution in the quarter, virtual And then I want to see if you could provide some incremental detail on your Corusocial Casino portfolio in the quarter. You did highlight In the press release, a focus of investment on Myconomy in MyVegas, maybe contrast a bit what's going on there relative Pop Slots, which you didn't mention and I'm assuming maybe has better performance?

Operator

Yes. I mean, we

Speaker 2

don't typically break out or speak to the specific performance of each of the products. So I'll just generalize or share that Part of what precipitated the changes that we made last quarter and some of the restructuring that we did was to Really align the core leadership and talent that we have within our casino genre with those 2 core franchises to kind of reset them. Feel like there's still unrealized potential with those products. And so we went through and conducted Those changes and transitions through the last quarter that we just concluded and they're still ongoing and we are encouraged and feel like There's an opportunity for us to unlock that value as we advance through this quarter and into 4th. So that's kind of the Color or commentary on both MyVegas and Konami specifically, top has always been kind of the More of the standout pro form a within the casino portfolio for us in terms of its scale and its capacity to convert and monetize its audience.

Speaker 2

And so we look to it and to the teams that have managed it to really help inform how it is that we approach improving the execution and performance both MyVegas and MyCanami. So those are some of the fundamental reasons why we ended up realigning those products. There's also obviously a pretty meaningful Improvement in just the overall cost structure of those products as we made those changes.

Operator

As far as so that's the

Speaker 2

on the A similar portfolio, hopefully some additional detail that's helpful. With respect to the composition of revenue and the mix Between in app purchase and advertising, I'll leave that to you, Scott.

Speaker 3

Yes. The virtual currency was roughly 80%, Advertising was 18% and we had 2% of other revenue.

Operator

Thank you.

Speaker 2

Awesome. Thank you, David.

Operator

The confirmation tone will indicate your line is in the question queue. Our next question is from David Tang with Stifel. Please proceed with your question.

Speaker 5

Hi. Thanks, guys. Just had a question on Play Awards. I think you mentioned earlier that You had some early testing with external partners. I was curious to hear what the early feedback has been thus far?

Speaker 5

And How should we think about the potential business model for Play Awards as a service for external partners?

Speaker 2

So we as I alluded to in the release, we've started to engage with some select partners to just Share what our intentions are in providing loyalty as a service solutions. They have preliminary conversations. We do it to kind of test the waters, get feedback, see how people react to the overall idea Position of incorporating loyalty into some of their core franchise products. I would say overall for the select conversations that we've had, people see it as Unique and interesting, and they're curious to learn a lot more. And so the learning of a lot more has What does it mean in terms of the potential impact that it can have on their overall performance?

Speaker 2

So What can and should they expect in terms of lift and some of the key metrics? And how does that relate to the way the programs Designed and the mechanics within the programs that we emphasize. And then they have a bunch of questions around the execution. So How much resource will it actually consume to actually integrate and then ultimately service and manage over time so that they can enjoy those benefits. They can then kind of assess the returns relative to the complexity and cost of implementing So it's exactly the conversations that we want to be having, so we understand what the sensitivities are.

Speaker 2

We obviously have a lot of our own information and data that we use to help Illuminate those conversations and provide some clarity, but there I would characterize them still as being very early. So and then as far as hopefully that addressed the questions on Just generally the nature of the conversations. As for the commercial model, we have a bunch of different alternatives and ideas that We are also starting to socialize. There's different ways for us to monetize and extract value out of our whole loyalty proposition, Given that it's a marketplace, there's 3 different parties that benefit from it. There's not only the players, obviously, that are enjoying these free benefits, But there's the game makers and publishers on one side of the market and there's the rewards partners and providers that really leverage it as Channel to go and acquire new consumers or reactivate dormant ones or really leverage and get better yield out of whatever inventory they have.

Speaker 2

And so we've engaged and have had conversations about different pricing models, but it's really way too early for us to Converge on any one. But as we do and we get a bit more clarity, we're happy to share what our company is.

Speaker 5

Okay. That was very helpful. And then just as a follow-up to your comments on MyVegas and Myconomio. Wondering what kind of changes that are being implemented or being expected to be implemented In game, specifically for those 2 games?

Speaker 2

Well, they're a bit different. The MyVegas product, Its overall position is it's a very easy and accessible and engaging product In terms of its presentation and creative direction and the types of games that we craft for it, whereas Konami is really for more of the casino or slot purists, those players that really enjoy in traditional play, slot machines and casinos. And so their expectations in the product are very different. And so things that we need to do to optimize each of them are different. In the case of Myvegas, we see an opportunity to convert more of the audience and then drive up our PPPO.

Speaker 2

When we look at the methods with which we do that in our Pop product and some of our other products are really successful. It calls for some economy adjustments, which are rather complicated. The economies refer to the way we manage The delivery and how we inject kind of the free currency into the cycle the players experience versus where we introduce friction and actually drain that currency From the economy, so the rate and pace with which we do those things and how that's balanced is something that we'll be visiting actually in both of those products, but probably more so in my Vegas. And then how we go about segmenting our audience and then adjusting and tailoring both the Complexity and difficulty of the game experience and how it is that we go about promoting different offers And how those offers are priced in light of what we know about the players, the sophistication that we employ in doing that is something that we're advancing and evolving. And so we believe that there's an opportunity for us to both convert more players to payers and drive up In our Kinami product, we think that there's Also an opportunity to convert more of our audience, but even though we have fairly healthy our people with that product when compared to the other games, social Games that are based upon existing real world casino content, we believe we lag the market.

Speaker 2

So We think the methods that we employ in order to encourage and motivate our players that are paying to actually Spend a bit more, we think there's headroom there. So and again, it comes down to how the features are all integrated and balanced and the adjustments And all the different types of offers that we're going to extend in order to drive and promote more spending. So those are things that both teams are pretty intensely

Operator

Thank you. Our next question is from Greg Gibbons with Northland Securities. Please proceed with your question.

Speaker 6

Hey, good afternoon. Thanks for taking the questions. Regarding your intention to increase user acquisition spend In the coming quarters, what's kind of the reasoning there? Are you expecting maybe to see

Operator

proved payback on that spend going forward?

Speaker 6

Or is it Specifically to target like certain games like Tetris, just wanted to dive in a little bit deeper on the strategy there?

Speaker 2

Yes, it really has more to do with Folio of growth and new development products that we have. We have right now 4 or 5 different new products that are in development, all that are in the markets at varying stages where we're qualifying them. And so as they as the core metrics get to a place where they start to want and justify our spending a bit more We're ultimately getting into a more general launch of those products and we'll grow the launch, although require a lot more resource and UA allocation. And then within our growth portfolio, the same is true. The growth products all tend to be earlier in their lifecycle.

Speaker 2

We feel that they have the

Speaker 1

capacity to grow in

Speaker 2

terms of audience revenue and profit to grow in terms of audience revenue and profit contribution. And so we'll lean into those as they continue to mature and evolve. And of course, in both cases, we're holding all of our products, both categories, but all the gains within those categories, we hold to Very specific and tight performance metrics in and around payback horizons and returns on ad spend. And so I would say across our portfolio, we the performance of our current UA investments It's really solid. And so as again some of these growth products and the development stage products mature and more to justify Investing more in them and scaling and growing them, we will.

Speaker 2

And so we're certainly hoping and anticipating that that will be true as we kind of advance and move into the Q4 of this

Speaker 6

Great. That's helpful, Andrew. I wanted to follow-up on the restructuring. Maybe regarding the cost savings that you're seeing as a result of that, how much was reflected in Q2? I know it was like Couple of quarter long process.

Speaker 6

Should we see additional improvement maybe in margins as a result of that in Q3? Or would you say Most of the cost savings are kind of fully reflected at this point.

Speaker 2

There's still some benefits To be realized in Q3, I'll let Scott kind of speak to it. But we instituted the changes really in Q2 and We had all kinds of kind of transition plans and programs and retention plans where we carried some of the expense into and through the Q2. But Scott, you want to shed some light on that topic?

Speaker 3

Sure. I mean, Andrew is right. I mean, really, there wasn't too much savings in Q2, maybe a little bit towards the tail end. We expect to see the bulk of the savings that we will experience in the middle of Q3 as we're Exiting some leases and other things like that. So yes, you'll see a little bit more savings.

Speaker 3

I'm not being terribly specific, But there will be some in Q3 and more in Q4. By Q4, we'll have realized all of them basically on a normalized basis.

Speaker 6

Okay, great. And yes, that's helpful. Just trying to get a sense of the timing there. I think lastly for me, and I know you already spoke a lot about The early efforts and the improvements that you're working on for Myconomy and My Vega slot. But I guess I just wanted to follow-up regarding like a rough Timeline on that, like when would we start to see those like, I guess, those efforts on you mentioned the economy adjustments within Games and then like targeted segmenting, when would we maybe see those improvements take place?

Speaker 6

Do you have kind of a rough timeline?

Speaker 2

Yes. I mean, there's it isn't like there's a big body of work that once it's completed, then there's kind of this key moment where all of a sudden we There's a very comprehensive set of adjustments and a roadmap that will extend even beyond this calendar year for those products. I didn't mean to imply we don't do Lot of those things, we're constantly looking at refining and tweaking the economies and our segmentation practices. But to do more fundamental And changes to the tools that we use and the applications are Themselves and the degree to which they can accommodate the kind of flexibility that we know we need more of in our products, That tends to be more foundational and requires a bit more work and time. And it's the kind of work where You're really I refer to this being foundational.

Speaker 2

It's kind of like you're jacking up a building and addressing some of the core infrastructure. And so until you get into it, particularly in light of the fact that these are fairly long standing products, You're not entirely sure some of the issues that you're going to confront and get into. So we expect that We're going to start to see and enjoy some of the benefits this quarter and into the Q4, but there's no question that work will extend on into the early part of next year.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Andrew Pascal for closing comments.

Speaker 2

Well, thank you. Again, just to really appreciate everybody's time and interest, and we just look forward to continuing to update you on our progress as we advance through the balance of the year. So thank you very much everyone.

Operator

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

Powered by Quartr
Earnings Conference Call
PLAYSTUDIOS Q2 2023
00:00 / 00:00