Playtika Q3 2024 Earnings Call Transcript

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November 7, 2024

There are 12 speakers on the call.

Operator

Good day, and welcome to Playtecha's Holding Corp. Q3 2024 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Tay Lee, Senior Vice President of Corporate Finance and Investor Relations.

Operator

Please go ahead.

Speaker 1

Welcome everyone and thank you for joining us today for the Q3 2024 earnings call for PlaTika Holding Corp. Joining me on the call today are Robert Antical, Co Founder and CEO of PlaTika and Craig Abrams, PlaTika's President and Chief Financial Officer. I would 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 have posted an accompanying slide deck to our Investor Relations website, which contains information on forward looking statements and non GAAP measures. And we will also post our prepared remarks immediately following this call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I will now turn the call over to Robert.

Speaker 2

Good morning, and thank you, everyone, for joining our call today. We're excited to share updates on our recent progress, especially about our proposed acquisition of Superplay. For those who have not seen our earlier communication, this deal is a key milestone for us and fits with our growth strategy. While the acquisition is still pending customer closing condition, we see it an important step in changing our growth momentum. M and A has always been cornerstone in our strategy here in Playtica.

Speaker 2

Over the years, we have found, acquired and most importantly scaled top tier gaming studios, which has allowed us to build robust portfolio. 9 of our top 11 existing titles have come via M and A. Super Play with its success in high growth categories through Dice Dreams and Domino Dreams bring us an incredible opportunity to enhance our portfolio. These titles already have a strong market presence and Super Play's 2 new games in development also bring further momentum to our business. By empowering Super Play to continue their innovation work while leveraging our scale and resource, we aim to maximize the potential of their games and enhance our market leadership.

Speaker 2

This acquisition, when finalized, will demonstrate our continued commitment to building a diverse and successful portfolio of market leading franchise. We're excited about the future game pipeline at Super Play and what this can mean for our players and the shareholders. Thank you for the continued support. I will hand over to Craig for a more detailed review of our performance this past quarter.

Speaker 3

Thank you, Robert, and good morning, everyone. Following on Robert's comments, I want to take a moment to emphasize how the Supaplay acquisition aligns with our broader financial strategy. Our focus on generating sustainable free cash flows allows us to support our capital allocation strategy, including M and A and returning capital to shareholders. The proposed acquisition of Superplay is a perfect example of our disciplined approach. We have structured this transaction with a balanced mix of upfront payment as well as revenue and EBITDA performance based earnouts, which helps align incentives and ensures we maintain financial flexibility.

Speaker 3

This structure not only enables us to limit downside risk, but also aligns our goal to reignite revenue and credit adjusted EBITDA growth, while driving long term value creation. Superplay continued its impressive performance in the 3rd quarter as consolidated revenues grew double digits sequentially, and the studio had another record month in September posting all time highs of gross revenue per day. While the robust performance of Superplay highlights the strength and importance of our M and A strategy, it is equally important to recognize the continued contributions of the assets we acquired last year. Governor of Poker III continues to show growth potential and I'm pleased to report that this studio has grown sequentially every quarter since our acquisition. Animals and Coins delivered record breaking performance in Q3, marking a significant turnaround after the economy challenges we faced in Q2.

Speaker 3

The game economy adjustments combined with our strategic decision to restructure the earn out by lowering the maximum cap and spending incremental marketing dollars have driven the studio's success. As a result, Animals and Coins achieved all time high revenues with strong month over month growth throughout the quarter. This momentum underscores the strength of the studio and validates the changes we made to position Annals and Coins for sustained long term success. While executing on sustainable and value enhancing M and A remains a priority, we are equally focused on managing liquidity, leverage and our capital structure. We will continue to proactively manage our capital allocation to support growth opportunities, while maintaining a strong and stable financial foundation.

Speaker 3

Our approach is built to ensure that we can execute our strategy without compromising our commitment to financial health. We believe this disciplined approach will allow us to successfully support both organic growth and potential future acquisitions. In summary, we are excited about the potential the Superplay acquisition brings and confident in our ability to enhance our growth profile, all while maintaining a firm focus on financial discipline. With that, let us dive into our Q3 financial performance. For the quarter, we generated $620,800,000 of revenue, down 1% sequentially and down 1.5% year over year.

Speaker 3

Credit adjusted EBITDA margins improved over Q2 as we generated credit adjusted EBITDA of $197,200,000 up 3.2% sequentially and down 4.1% year over year. Net income was $39,300,000 down 54.6% sequentially and up 3.7% year over year. Our direct to consumer business continues to outperform the overall business as we generated $174,400,000 which was up 0.4% sequentially and up 8.3% year over year. Turning now to our business results from the quarter. Revenue across our top 3 games was up 1.1% sequentially and down 0.8% year over year.

Speaker 3

Bingo Blitz revenue was $159,900,000 up 2.7% sequentially and up 6.8% year over year. Bingo continued its strong execution of its direct to consumer business in the quarter, helping drive DTC revenue to a record high. In addition, Bingo achieved its highest revenue month in history in July. Saltair Grand Harvest revenue was $79,000,000 up 6.5% sequentially and down 0.2% year over year. We are optimistic about the roadmap going into next year as Solitaire continues to regain its footing and drive incremental success.

Speaker 3

Slottomania revenue was $128,700,000 down 3.8% sequentially and down 9.3% year over year. While we increased our user acquisition spend for Slottomania this year, Q3 results did not meet our expectations. Moving forward, we are realigning our strategic focus in the studio, placing a greater emphasis on the product and feature roadmap to drive a meaningful increase in paying users. This shift includes the introduction of historic IP such as Cleopatra 2 launching in Q4 as the first in a series of leading titles under our licensing agreement with IGT. Additionally, we are implementing key product changes such as modifying the in game experience for albums in Slottomania Club, which are designed to enhance engagement and monetization opportunities.

Speaker 3

Turning now to specific line items in our P and L for the quarter. Cost of revenue decreased by 3.3% year over year, driven by a change in revenue mix between direct to consumer platforms revenue and 3rd party platforms revenue as well as the decline in overall revenue. R and D expenses declined by 2.9% year over year. The decline in R and D were due to extensive cost management implemented consistently throughout the year. Sales and marketing expenses increased by 5% year over year.

Speaker 3

The increase in sales and marketing expenses was primarily due to the increase in performance marketing. As discussed in our Q1 earnings call, we anticipated that sales and marketing spend would be the highest in Q1, with year over year growth tapering in subsequent quarters. Accordingly, sales and marketing expenses declined by 11.5% sequentially. G and A expenses declined by 3.5% year over year. The decline in G and A expenses was driven by a one time favorable adjustment of payable contingent considerations and reduced compensation expenses from lower headcount.

Speaker 3

As of September 30, we had approximately $1,200,000,000 in cash, cash equivalents and short term investments. This does not incorporate the contemplated upfront payment of $700,000,000 for the Superplay acquisition. Looking at our operating metrics, average DPU increased 1% sequentially and 0.7% year over year to 301,000. Average DAU decreased 6.2% sequentially and 9.5% year over year to $7,600,000 The decline in average DAU year over year was primarily due to the strategic decision to reallocate marketing dollars and R and D resources away from some of our smaller casual titles such as Just Play 1v1. ARPDAU increased 4.7% sequentially and up 9.9% year over year to $0.89 We are adjusting our guidance for the year as follows.

Speaker 3

Revenue is now expected to range from $2,505,000,000 to $2,520,000,000 reflecting our revised outlook. Meanwhile, we are raising our credit adjusted EBITDA guidance to a range of $755,000,000 to $765,000,000 Finally, we are lowering our capital expenditure guidance to $90,000,000 as we remain focused on maximizing free cash flow. Our guidance does not incorporate the impact of the Superplay acquisition as the acquisition is still pending and we expect to close later this quarter. With that, we'd be happy to take your questions.

Operator

Thank And our first question will come from the line of Chris Scholl with UBS. Your line is open.

Speaker 4

Great. Thank you. Craig, just taking the midpoint of your full year guidance, I believe implies a higher revenue decline, but improvement on EBITDA in 4Q. Can you help us think through the drivers there? And when you announced the Superplay deal, you mentioned coming back to the market with capital allocation and future M and A plans.

Speaker 4

Any updated thoughts you can provide at this stage? Thank you.

Speaker 5

Sure. Thank you for the question. So I'll start with the second part first. After our Q4 earnings post the closing of the Superplay transaction, we will update both on guidance for 2025 as well as discuss our capital allocation framework as it relates to M and A as well. In terms of this year, obviously, over performing in terms of raising the guidance for EBITDA based on cost management and being selective on marketing investments to the highest ROI opportunities.

Speaker 5

When you look at top line, the slot of mania and some of the casino theme titles underperformed relative to expectations as we started the quarter and so that helped dictate lower guidance for the quarter.

Speaker 4

Great. Thank you. If I can just fit in one more, I believe you mentioned a new product and feature roadmap for Slotomania. Just how are you thinking about the timeline for stabilization here and any shifts in competitive dynamics you would call out?

Speaker 6

Hi, Yaroni, it's Robert. So regarding Slutomania, as we spoke last quarter, we have very strong plant during regarding content, especially with the deal that we did with IGT. We're going to start launching the new content in the end of this year already. And together with the product changing, we believe that next year is going to be a very interesting and promising year to Slotermane.

Speaker 4

Great. Thank you very much.

Operator

Thank you. One moment for our next question. And that will come from the line of Drew Crum with Stifel. Your line is open.

Speaker 7

Okay. Thanks. Hey, guys. Good morning. As it relates to your revenue mix, the DTC piece has continued to increase sequentially as a percentage of the total.

Speaker 7

I know you haven't updated that 30% target, but is there anything forthcoming that would cause a material change in the mix? And then I have a quick follow-up.

Speaker 3

No, I think we have

Speaker 5

continued execution as it relates to new title launches. So in terms of the execution we have in June's Journey, the execution that we have in Salter Grand Harvest continues to help there, but nothing outside of the performance that you've seen in the last few quarters. It's pretty consistent and steady Post Superplay acquisition, we'll have to reassess the roadmap and opportunities to integrate DTC there as well.

Speaker 7

Got it. Okay. And then just on the casual side of your portfolio, you mentioned the record performance for animals and coins and the strong performance for bingo and stabilization for solitaire. If you isolate those, it looks like the revenue was weaker. Anything to call out or flag in terms of what drove that decline?

Speaker 7

Thanks.

Speaker 5

So I think what you're seeing is that as we continue to focus investments on our biggest titles that are number 1 in their respective categories, we see better performance there. And some of these smaller titles where we've taken away R and D and marketing resources from them, those titles will continue to stagnate or decline. So we're managing the portfolio for growth from the biggest titles and more so on profitability from some of the smaller titles.

Speaker 7

Got it. Thanks guys.

Operator

Thank you. One moment for our next question. And that will come from the line of Eric Handler with Roth Capital. Your line is open.

Speaker 8

Good morning and thanks for the question. You guys have always done a very good job of driving higher average revenue per or sorry, with daily paying users and your player conversion. But as you sort of look at your portfolio of growth titles versus sort of like your smaller titles, ultimately you want those larger titles to keep expanding the funnel in terms of DAUs. Can you maybe talk a little bit about the dynamic that's going on? Like are you seeing growth in DAUs with your focus titles?

Speaker 5

Sure. So as we look at further diversification of the portfolio, both through future acquisitions and the acquisitions we've done over the last few years, we see growth in those titles in terms of growing the user base. I think as we look at more of the legacy titles, it's more consistent what you've seen over the kind of the last 8 quarters of a more consistent decline in the DAU base as we focus on higher quality customers in Tier 1 markets. I think what you see is DPU this quarter was up both year over year and sequentially. And so that is the metric that we're most focused on.

Speaker 5

But I think some of the smaller titles like 1v1 and RIDE CORE both had bigger declines as we pull back on marketing dollars from a DAU product. Those were low revenue producing titles to begin with. So it's not the same user base in terms of quality.

Speaker 3

Great. Thanks, Craig.

Operator

Thank you. One moment for our next question. And that will come from the line of Matt Coss with Morgan Stanley. Your line is open.

Speaker 9

Great. Good morning. Thanks for taking the questions. I guess on the marketing side, Craig, you're very clear and you messaged pretty clearly throughout the year that there would be this step up in marketing in 1Q and then kind of this decline or kind of mean reversion over the rest of the year. But as we look at kind of the 4Q guide where revenue and EBITDA are moving in opposite directions, it seems like you're being a little more selective on the marketing side, I think you said.

Speaker 9

So I guess, what are you seeing there? I mean, would you look back on the marketing that you did in the first half and say, it didn't pan out as well as you had hoped and so you're just really paring down as you move into the second half? Like what is changing in that UA environment?

Speaker 10

Hey, it's Neil, Playtech as CMO. Thanks for the question. So basically as we have a variety of different games, so obviously the story is different for each one of them. In the H1, we try different approach. Some of the things that we did around the offline activity didn't meet our expectation and we did the shift towards performance.

Speaker 10

I think that overall in the marketing arena we see lots of things that can be beneficial for us in the future. An example for that, what we are seeing with the policy change of Google that they announced that Google Ads will start rolling out personalized ads for social casino. This is a great news for us and an opportunity basically to put slots, poker and bingo under the same role, I would say, as a casual game. So this is a it can be beneficial for us from just as an example for marketing, retargeting and also for improved algorithm that we are using with Google. So we are seeing things that can help us in the future and we're going to focus more on the performance side moving forward.

Speaker 9

Great. Thank you. And then just on the revenue guide, should we think of Slottomania as the main driver of like the lower revenue guide, or are there other big movers that you would call out?

Speaker 5

No, I think it's a mix of Slottomania and the smaller titles.

Speaker 3

Got it. Okay. Thank you.

Operator

Thank you. One moment for our next question. And our next question will come

Speaker 3

from the

Operator

line of Aaron Lee with Macquarie. Your line is open.

Speaker 11

Hey, good morning, guys. Thanks for taking the question. I wanted to start with Superplay. Are there any opportunities for synergies or just cross pollination of best practices or monetization between this acquisition and some of your existing titles like maybe Board Kings or Animals and Coins?

Speaker 6

So of course, when you look at the founders of Superplay, the guys are Expletica and the Capron Platica and there is a lot of look and feel in the Superplay like Playtica. We are not in this point of the deal and we are not speaking about synergy right now. This is not the focus of synergy. Superplay has their own road map and they're going to work independently and they get to their targets. Always in the future things can happen, but right now there's no even conversation regarding this.

Speaker 11

Okay, fair enough. That makes sense. As a quick follow-up, last quarter you mentioned a new game being developed by WUGA, Clarus Chronicles. Is that game still on track for Q2 2025 launch? And how are you thinking about growing that and also growing June's Journey?

Speaker 11

Is there going to be any cross sell there? Or is it really just trying to focus on growing both at the same time?

Speaker 6

So yes, we mentioned a new game of MUGA is going to be launched next year. We're already doing beta test. We're already doing some small launches in some small places. There's no connection between this guy and the roadmap of June Journey. It's a different team.

Speaker 6

It's a different target. June Journey had amazing roadmap for next year. June Journey was growing incredibly in the last 6 years, one of our leading titles and it's going to stay one of our leading titles.

Speaker 11

Okay. Thanks, Robert. Appreciate the color.

Operator

Thank you. One moment for our next question. And that will come from the line of Omar DeSouki with Bank of America. Your line is open.

Speaker 1

Hi, thanks. Thanks a lot. We've been noticing a trend towards hybrid monetization. I just wanted to get your updated thoughts on whether you think that's a growth vertical and if your thoughts on advertising have changed at all since the last couple of calls we've talked to you?

Speaker 5

No, I think for the most part, our portfolio is in app purchase focused. We have titles like Animals and Coins, which has advertising natively built into the game as part of it, from the design from the beginning, some of our other titles as well, but no anticipation of shifting strategy there, strategically.

Speaker 11

Okay, got it. Thanks. Appreciate it.

Operator

Thank you. I'm showing no further questions in the queue at this time. So thank you all for your participation. This concludes today's program. You may now disconnect.

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Earnings Conference Call
Playtika Q3 2024
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