PLAYSTUDIOS Q4 2023 Earnings Call Transcript

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March 11, 2024

There are 7 speakers on the call.

Operator

repurchase any shares during the quarter and still have $50,000,000 remaining in our stock purchase authorization. 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. Finally, our outlook for 2024.

Operator

We estimate that revenues will range between $315,000,000 $325,000,000 and adjusted EBITDA between $65,000,000 $70,000,000 With the annualization of Raynium, these estimates are apples to apples and do not include M and A. This is particularly noteworthy for the revenue guidance, which implies organic growth despite what we believe will continue to be a challenging industry and economic backdrop. Our guidance also implies continued adjusted EBITDA margin gains. When modeling our 2024 results, please consider the following. We expect many initiatives to gain momentum throughout the year, so you should assume a sequential pickup through each quarter.

Operator

Other revenues will track closer to the quarterly rate generated in Q4 of 2023. This change will annualize in the Q3 of 2024. Thank you. 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. Before we end our prepared remarks and open the call for questions, I'd like to reinforce some key points. 2023 was a year of growth, development and change. We nearly doubled our EBITDA, increased revenues in a declining market and put in place the building blocks for substantial progress in the years to come. Entering 'twenty four, our business is substantially more diversified than it was just a year ago.

Speaker 1

A majority of our games are outside the casino category and advertising revenues now make up nearly 20% of our overall sales mix. These new businesses are also our fastest growing, implying a continued mix shift towards higher margins and larger addressable markets. With our recent license extension in place, we're committed to establishing Tetris as a world class mobile franchise. We have exciting new games in development and are working towards introducing our first new title later this year. PLAY Awards will begin qualifying its revenue opportunities this year.

Speaker 1

There continues to be a high level of interest in our program, technology, tools and unique capabilities and we believe this will be a meaningful driver of future growth. We're making progress in our efforts in MyVegas and Myconomy and believe both games are on track for notable improvement in 2024. Brainy and exited last year with substantial momentum as our efforts around new advertising initiatives began to take hold. We expect to see continued momentum this year. Our balance sheet remains strong with $133,000,000 of cash and no debt and supported by an operating business that generates positive cash flows.

Speaker 1

Our plan remains to use our capital to make transformative acquisitions and our goal is to make progress on that front this year. At the same time, we continue to look at other ways to use capital to generate shareholder value, including strategic investments in our business and making use of our $50,000,000 share repurchase authorization. Lastly, I continue to believe there's a large discrepancy between the core value of our business and the value ascribed to us in the public markets. While frustrating, rest assured our leadership is aligned, our teams are focused, and we're all committed to strengthening our company. I want to thank you for your time today.

Speaker 1

We appreciate your support and hope you're as excited about this year as we are. I'll now turn the call over to the operator to take your questions. Operator?

Speaker 2

Thank you. And we will now be conducting our question and answer session. And our first question comes from Ryan Sigdahl with Craig Hallum. Please state your question.

Speaker 3

Hey, good afternoon guys.

Speaker 1

Hey, Ryan. How are you? Hi.

Speaker 3

Good. Good. Thanks. I want to start with the potential commercialization of PLAY Awards as a loyalty as a service platform. Is that just a focus area or is the pipeline actively being evaluated and worked on as we speak?

Speaker 1

Look, it's been something we've been focused on really since the early part of last year. We've done a lot to kind of qualify the opportunity and start to evaluate different commercial models. I would say we're still in that phase, but are encouraged by the feedback that we've received. I think that the level of interest and curiosity around the program and its potential impact has reinforced for us that there's value here and it's now about resolving the right and best way for us to go and exploit it. And so we fully expect that we'll resolve that this year and as we do, we'll share our thinking and provide a bit more of an outlook.

Speaker 3

Switching over to the cost side, is there more efficiencies that you guys have targeted or is primarily the operating leverage and margin expansion to get to that peer median, more so to do with operating leverage and revenue growth?

Speaker 1

I think we're always looking at how and where we might be able to find new opportunities for added productivity and efficiency. But I think that really the more significant opportunity for us is top line growth. I think if you were to look at our fully loaded cost per employee as compared to our public peers, you'll find that we are in line or actually below where they are. So we'll again continue to look for how and where we can be more productive, but our margin expansion going forward is going to come from top line growth and flow through.

Speaker 3

Makes sense. One more for me. Just as you think about the stock at this valuation, I know you had some prepared remarks, but are there any M and A transactions that could be more accretive than just going and repurchasing your own stock here?

Speaker 1

Yes, we believe there are. They're obviously difficult to find in light of how and where we're trading. And I think it's important for everybody to understand that while we're always going to be looking to ensure that the transactions we would do are accretive, we also want them to be strategically significant and that they really reposition the company to enjoy yet even greater growth. So I think sometimes you have to look past to the immediate impact of the transaction and how it's engineered financially to what does it really mean for the company in terms of its strategy and how it's going to continue to evolve. So those are the factors that we consider as we look at our opportunities.

Speaker 3

Great. Thanks, guys. Good luck.

Speaker 2

Our next question comes from Aaron Lee with Macquarie. Please state your question.

Speaker 4

Hey, good afternoon, guys. Thanks for taking my question.

Speaker 1

Sure. Hi, Aaron.

Speaker 4

Can you just start turning to guidance for a second, can you just talk about the puts and takes that get you to the high end and the low end of the range? What's contemplated from an investment and marketing standpoint? And you're just generally where you think the biggest buckets of growth will come from? Thank you.

Speaker 1

Sure. I mean, I'll take this and I'll ask Scott to add any further color. The growth is really going to come from across the portfolio on the game side of our business. We further kind of qualify and look at our portfolio in several different subcategories. There's our core portfolio.

Speaker 1

There's our growth portfolio and the products that we have in development. We see opportunities in our core portfolio, which have come under pressure because of the secular headwinds over the last 2 years. As we talk a lot about, Social Casino has suffered some contraction. But it's been overcome by the growth in the casual categories that we're now very active in. With that said, we think that social casino is stabilized and we're seeing signs of growth there.

Speaker 1

So we think there'll be a modest amount of growth coming out of that portfolio this year. When we look at our growth products, they really relate to the current live products that we have in the casual portfolio, our Tetris Prime product, which has grown meaningfully in the last year and continues to have great momentum as well as the Brainium suite. And then we have a collection of new products that we're actively investing in and development category that it's hard to predict how and when they'll be ready to be launched into the market, but we would hope that one of them will be in a position where we can start to introduce it before the end of the year. So across the game portfolio, that's how we're thinking about growth. It's a bit moderated.

Speaker 1

And then as far as the underlying investments in user acquisition and our budget there, we'll scale that up to support the products that are worthy of it, especially if we end up launching one of the new casual Tetris products this year. There'll be pretty meaningful investments on the UA side associated with that. Otherwise, we're focused on continuing to, as I alluded to a moment ago with Ryan, look for new opportunities to drive productivity and efficiency as we introduce these new products and continue to scale our existing ones. And so that's what's going to drive continued kind of flow through margin expansion. And the only thing I would add to that is, as we said, or as I said in my comments, the way we're viewing the year is it's sort of going to be a sequential growth.

Speaker 1

We're going to we're kind of on this trajectory and you should kind of look at each quarter is hopefully getting a little bit better as we go.

Speaker 4

Great. Appreciate all the color there. And then just turning to play awards for a second. Is there anything you can share in terms of how confident you are that this will materialize this year versus slipping into next year? And how should we be thinking the reinvestment into the Player Wars platform from here?

Speaker 4

Should it be fairly steady from current levels? Or do you kind of expect to have to turn on the faucet a bit to accomplish some of your goals? Thank you.

Speaker 1

Yes. No, those are great questions. Look, I think that we are pretty confident about the value proposition that we have with Play Awards. We obviously have a ton of experience with it. The complexity is in making the transition to providing it as a service to other strategic partners and publishers in the industry.

Speaker 1

And so there's work to be done there and certainly hope that we'll resolve our strategy and approach before the end of the year. And as I said earlier, we'll provide some clarity in future calls as we resolve it. And then as far as the ongoing investments that we're going to continue to make in PLAY Awards, they're fairly stable. I think once we're in a position, we're ready to scale, servicing and supporting new game publishers as partners. There'll be some level of added cost, but we don't believe it will be that material relative to our current run rate.

Speaker 1

So the current investments are fairly mature and they'll continue.

Speaker 4

Great. That's helpful. Thank you very much and good luck.

Speaker 1

Yes. Thanks so much, Aaron.

Speaker 2

Thank you. Our next question comes from David Pang with Stifel. Please state your question.

Speaker 5

Thanks guys. I would like to hear your thoughts on what the implementation of the DMA in Europe means for Play Studios. Does it have any impact on your efforts on DTC?

Speaker 1

Hi, David. It's Sameer. You're just talking about the new regulations there with Apple.

Speaker 5

The new regulations and the updated policies from Apple and Google?

Speaker 1

Yes. So, I think like everybody else in the industry, we're still waiting for this thing to fully form. I mean, obviously, it's quite fluid, and the litigation seems like it's still ongoing. So, there's really nothing definitive there. But I think our DTC strategy is going to I didn't hear the acronym.

Speaker 1

So the direct to consumer proposition for us is something that we're obviously focused on. We're going to continue to watch and see how the various disputes between the platform providers and Epic and other game makers play out, but our general view is that we have a really unique proposition with Play Awards. And for a long time, we've had a web based presence where our players can now interact with us directly in order to explore the full range of benefits that we offer through our Play Awards program. We've incorporated into our web solution the capacity for our players to purchase with us directly. Unlike most of our peers in the industry, we can actually offer up really unique incentives and a value proposition that's very different from everybody else to actually incentivize and encourage that direct purchase with us.

Speaker 1

So that's a program that we're actively ramping up. We're continuing to invest in new features and capabilities. So we would expect that our direct to consumer complement of our revenues will continue to grow. We think that there's a ton of room for us to increase the overall mix of direct to consumer revenue and of course that comes with a pretty meaningful improvement in margin and gross margin. So that should be a driver for us going forward.

Speaker 5

And just to follow-up on that point, do you have a long term target on what DTC might make up?

Speaker 1

Well, we set goals for ourselves each year as part of our planning process and we look at where our peers are the ones that are we think more mature and have been far more aggressive in the way that they've approached appealing to their consumers more directly. Playtika, in particular, has been a leader in this space. And I think something close to 25% of their revenue is direct to consumer. And so I would certainly hope that we'll be able to achieve rates that are comparable to theirs. But there's a lot of work to do there for us to achieve that level of overall mix.

Speaker 1

But we our ambitions are certainly to be in line with where our peers are at least.

Speaker 5

Got it. Thank you.

Speaker 1

Thank you.

Speaker 2

Our next question comes from Greg Debas with Northland Securities. Please state your question.

Speaker 6

Hey, good afternoon, Roger and Scott.

Speaker 2

Thanks for taking the questions.

Speaker 1

Yes. I

Speaker 6

wanted to I think you said just later this year was kind of your commentary, but if you could go over maybe the rough timing of new game launch this year and maybe if there are any modeling implications regarding marketing or increased development expenses during certain time periods?

Speaker 1

Yes. I mean, I think what we kind of signaled in our more formal remarks is that it's tough to predict when it is that we'll formally launch and start to scale up a new product. We have a few new products that have been in development now for over a year, both aligned with the Tetris franchise and brands. And we certainly would hope that we would introduce one before the end of the year. But the likely timing of it, we don't think will have any real meaningful impact on our performance for this year.

Speaker 1

So our forecasts and what we've shared in terms of guidance don't really take into account any impact from a new product that we introduced in the market, both top line as well as what we might do from a UA or a marketing perspective.

Speaker 6

Got it. Makes sense. And then wondering if you could just address the overall interest levels from perspective Play Awards and loyalty platform customers. I know in past quarters you talked about it being strong. I wonder if you've seen more interest there or if it's kind of stabilized.

Speaker 6

And I guess considering we've talked about it for a little bit now, like what's kind of causing maybe the delay in an initial customer there?

Speaker 1

Yes. I think what I'll do is I'll ask Jason Hahn, who's here with me. He heads up our Corporate Development and Business Development, who's really been leading the effort on qualifying those opportunities to kind of share maybe a little bit of the color. First, as I alluded a moment ago, the interest and I think the value of our program is pretty universally recognized. I think the complexity comes in how we go about pursuing it.

Speaker 1

So maybe I'll let Jason speak to that. Yes. So I think on the feedback, given some of the things that are happening in the market where becoming increasingly hard for mobile developers to acquire new users, I think everybody recognizes the value proposition of a program that allows you to hold on to users longer and invest in your loyal players that you already have is tremendously valuable as a value proposition. And we've demonstrated that our solution does in fact do that. And we've so we've had to spend, I'd say, the better part of the last 8 months building really tangible case studies to showcase with real data and AB testing that our platform does in fact undisputedly create that loyalty lift and we now have that.

Speaker 1

So that was one of the pieces of feedback we got from the market, which was you need some tangible case studies. We have that. The other piece of feedback was making it very seamless for a 3rd party to integrate the solution into your game. And so we spent also the better part of the last 8 months working on technology and refining it, so that any game developer can easily integrate this into their products. I think now that we've kind of addressed some of that feedback, we're just working on optimizing those things even more before we go back out to the market more formally and launch this as a formal product solution.

Speaker 1

But we're kind of getting ready to productize it in that way where we can actually launch it as a dedicated product.

Speaker 6

Okay. That's helpful. Thanks.

Speaker 2

Thank you. There are no further questions at this time. I'll hand the floor back to management for closing remarks.

Speaker 1

Just want to again thank everybody for their interest in the company and continued support and we look forward to an exciting year ahead.

Speaker 2

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.

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PLAYSTUDIOS Q4 2023
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