Playtika Holding Corp. (NASDAQ:PLTK) Q1 2024 Earnings Conference Call May 9, 2024 8:30 AM ET

Company Participants

Tae Lee - SVP, Corporate Finance and IR
Robert Antokol - Co-Founder and CEO
Craig Abrahams - President and CFO

Conference Call Participants

Colin Sebastian - Baird
Aaron Lee - Macquarie
Brian Fitzgerald - Wells Fargo
Arthur Chu - Bank of America

Operator

Good day, and thank you for standing by. Welcome to the Playtika Q1 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Tae Lee, SVP, Corporate Finance and Investor Relations. Please go ahead.

Tae Lee

Welcome, everyone, and thank you for joining us today for the first quarter 2024 earnings call for Playtika Holding Corp. Joining me on the call today are Robert Antokol, Co-Founder and CEO of Playtika; and Craig Abrahams, Playtika'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. 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 the call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC.

With that, I'll now turn the call over to Robert.

Robert Antokol

Good morning, and thank you, everyone, for joining our call today.

Last year I said that 2023 was our year of efficiency, and I'm pleased to report that we have made steps in optimizing our operation and our resource allocation. Our efforts last year have established a solid foundation, and I'm pleased to note that 2024 is our year of execution. As a part of this new phase, we have made some changes to our executive leadership team, better aligned with our strategic goals.

We recognize the evolving landscape of our industry and the importance to act swiftly and we have decided to reorganize our leadership team. Our goal with this reorg is to better align our management structure with our strategic priority of growing our leadership position in mobile gaming. We have decided to streamline our executive leadership team by eliminating the roles of Chief Revenue Officer and Chief Operating Officer. This adjustment is designed to flatten our leadership and bring studios under my direct oversight.

In addition, all shared services operation will now report directly to me, which includes our talented technology and HR teams. This change simplifies our reporting structure but also enhances my direct involvement in both our revenue generation strategic and operational management. This ensures we are agile and effective as possible.

Additionally, Nir Korczak, our Chief Marketing Officer who previously reporting to our CRO, will now report directly to me. We are pushing to enhance the synergy between our marketing efforts and studio operations by more closely integrating marketing directly within our studios. We are paving the way for more tactical and cohesive campaigns.

I also want to extend my heartfelt gratitude to our departing executives who have played critical roles in our journeys. Their contribution has been invaluable and they leave behind a strong legacy of having helped build Playtika into an industry-leading mobile gaming company.

As we move forward, we're excited about the opportunities that these changes bring. Our streamlined and flatter structure will enhance decision-making and accelerate our plans, allowing to better serve our community of players and create value for our shareholders. I am confident in our direction and the steps we are taking, and I look forward to updating you on our continued progress throughout the year.

I will now turn it over to Craig to talk in more details about the business and the financial results.

Craig Abrahams

Thank you, Robert.

I'd like to start by emphasizing the importance of our capital allocation principles which we introduced last quarter. Our strategy focuses on balancing capital returns to shareholders and capital deployment for M&A. This approach helps ensure that every dollar invested is maximized for shareholder value.

I'm pleased to announce that our Board of Directors has authorized a new share repurchase program of $150 million. This initiative highlights our financial stability and our ongoing commitment to delivering long term value to our shareholders. Together with our quarterly dividends, this share repurchase program is a key component of our strategy to systematically return capital to our shareholders.

Additionally, I want to update you on the performance of our recently acquired studios. Over the past two quarters, we have successfully added these new games to our overall operations. I'm pleased to report that they have continued to demonstrate strong performance. This performance reaffirms our confidence in the value creation potential of our M&A strategy and our capability to replicate this success in future acquisitions.

Turning to our financial results. For the quarter, we generated $651.2 million of revenue, up 2.1% sequentially and down 0.8% year-over-year. Our increased investment in performance marketing had an impact on our credit adjusted EBITDA margins this past quarter as we generated credit adjusted EBITDA of $185.6 million, down 1.7% sequentially and down 16.7% year-over-year.

Net income was $53 million. We saw strong results from our direct-to-consumer platforms as we generated $171.5 million, up 6.1% sequentially and 13.2% year-over-year. The strength in D2C was led by existing games on our platforms as we experienced sequential growth in our D2C business across Bingo Blitz, Slotomania, Caesars Casino, House of Fun, and World Series of Poker. We're in the early innings of our D2C business in Solitaire Grand Harvest and June's journey, and we expect to see incremental revenue contribution from D2C in the coming quarters.

Turning now to our business results for the quarter. Revenue across our casual games grew 2.9% sequentially and 1.3% year-over-year. The sequential growth in our casual games was led by Bingo Blitz, Solitaire Grand Harvest, and Animals & Coins. Bingo Blitz revenue was $157.5 million, up 4.8% sequentially and down 1% year-over-year.

Following sequential revenue stability in Q4 of last year, I'm pleased to report the strong sequential growth in Bingo, as this is a significant indicator of the resilience and growth potential of the Bingo Blitz franchise. While our revenue was down slightly year-over-year, the comparison is against the highest revenue quarter in Bingo's history. In addition, we're very proud of our Bingo Blitz team for their continued success in growing our D2C business. I'm happy to report that Bingo Blitz's DDC revenues grew double digits year-over-year.

Solitaire Grand Harvest revenue was $77.8 million, up 2.7% sequentially and down 8.9% year-over-year. Solitaire Grand Harvest saw its revenue decrease over several quarters last year following an exceptionally strong Q1. However, we are now seeing signs of positive momentum in the studio and we remain optimistic about our roadmap this year.

Our Social Casino Themed Games grew 1.4% sequentially and declined 3.5% year-over-year. The sequential growth in Social Casino Themed Games was led by World Series of Poker, Governor of Poker 3, and Caesars Casino.

Slotomania revenue was $135.4 million, down 1.1% sequentially and 7.6% year-over-year. In response to the competitive landscape for Slotomania, we have increased our performance marketing investments. Our efforts are aimed at increasing installs and engagement in solidifying our position in a competitive market.

In addition, we're making other strategic and tactical adjustments as we prioritize this franchise. We remain optimistic about our ability to stabilize and grow Slotomania over time and believe that our ongoing efforts will gradually reflect improved revenue performance.

Turning now to specific line items in our P&L for the first quarter. Cost of revenue decreased 4.7% year-over-year, driven primarily by growth in our D2C business and operating expenses increased by 16%, driven primarily by increased performance marketing spending.

R&D increased by 4.4% year over year. Higher R&D expenses were primarily due to a shift in our workforce composition towards higher cost locations, combined with merit-based compensation increases. These factors contributed to the rise in expenses despite a decrease in overall headcount.

Sales and marketing increased by 32.5% year-over-year. Growth in sales and marketing expenses were the result of the increase in performance marketing spend that we guided to on our last earnings call. The majority of the growth in performance marketing spend year-over-year was related to our newly acquired studios. We typically spend more in the first quarter than any other quarter, and so we expect the year-over-year growth in spending to taper off in the coming quarters.

G&A expenses declined slightly by 0.3% year-over-year. As of March 31st, we had approximately $1 billion in cash and cash equivalents. Looking at our operating metrics, average DPU increased 1% sequentially and decreased 5.2% year-over-year to 309,000. Average DAU increased 2.3% sequentially and decreased 3.3% year over year to 8.8 million. ARPDAU increased 1.3% sequentially and year-over-year to $0.81.

Finally, we expect revenue to be within the previously provided range of $2.52 billion to $2.62 billion and credit adjusted EBITDA in the range of $730 million to $770 million. Our outlook on CapEx remains unchanged.

With that, we'd be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Colin Sebastian of Baird. Your line is now open.

Colin Sebastian

Great. Thank you very much. A couple of questions for me. I guess first off, maybe, Robert, on the marketing strategy change and the new leadership structure, can you talk about maybe how that - the marketing strategy will evolve under your leadership of that? And then I guess based on what you've seen today with Slotomania, why not lean more into spend, I guess, across more of the legacy portfolio? And I have a follow-up. Thanks.

Robert Antokol

So first, thanks for the question. Very important one. So, eight years ago, Playtika was working differently than today. Each studio has its own marketing people, its own marketing strategy. And eight years ago we decided to put everything under one CMO. Now I started to feel that we need to do more new direction and we need to give more dependency to the studios.

And the changes we're doing today, actually, we're building another two teams that will work, one of them with Bingo and one of them with the Slotomania, and each of them will work a little bit differently than the others. It will give us as a company a better view of the market to do better tests. And by the way, for Slotomania, it's - the last quarter, we've always been critical. Why we are not investing enough, is the market is not good enough.

And I think we need to do things a little bit differently. And now with the independency of the studio, I feel it can help us to grow the business because we believe in the game, we believe in the studio, and we have big hopes for the future.

Colin Sebastian

Okay, thank you. And then on the D2C platform and Solitaire and June's journey, I guess, how quickly would you expect those to ramp up on D2C? And overall, I think you're 26%, 27% of revenues now through D2C. Where can we see that move up to over the next couple of years? Thank you.

Robert Antokol

So our target, as we said always 30%. We are not changing the targets. As I said - as you said actually, I'm very excited that we have still five games that not running on our platform and going to - we're going to add another two of them during the 12 to 14 months.

I think we will cross the 30% but I'm not changing any - I'm not changing the target. We were always the first one doing D2C. We always felt that this is the right direction. It gives us independency, give us a better margin, better cash flow and I think this is one of the biggest advantage of Playtika as a company.

Colin Sebastian

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Aaron Lee of Macquarie. Your line is now open.

Aaron Lee

Good morning. Thanks for taking my question. I mean, it's great to hear that you've reaffirmed your confidence in the M&A strategy. With regard to that, I guess, how are you thinking about investments in studios versus full acquisitions? In the past, I think you've done a few of those. Any takeaways from those and is this something you would consider going back to? Thanks.

Craig Abrahams

Sure. Thanks for the question. So as part of doing M&A in diligence on a variety of companies, I think it's important to be close to the entire ecosystem. So having the ability to make investments is an important part of the toolkit, as we develop relationships with a variety of studios. Obviously, our preference is to make acquisitions where we can leverage our live ops capabilities and help these businesses grow. We've done that as well in some examples with some investments.

Obviously, it's - that hopefully is a longer-term path where we make a good investment to hopefully acquiring that business or just developing a better relationship with that business. But I think our priority is clearly M&A but having that investment capability in our toolkit is important as well.

Aaron Lee

Understood. That makes sense. And then just curious to hear the latest state of the union with regard to your ad tech and marketing tools and whether it makes sense to kind of flex your R&D budget a bit to accelerate any efforts there. Thank you.

Craig Abrahams

Yes, so, the ad tech ecosystem is rapidly changing and I think what we're finding is that it's best to look at each opportunity individually and in some examples use internal tools and in some examples use third-party tools. And it doesn't necessarily always need to be built in-house. I think as we look at certain tools, whether it's for attribution or budget allocation, there are new AI tools either in-house or third-party that are helping us there. And we'll continue to look to what's the best-in-class way to help us continue to optimize marketing.

I think overall, our big advantage in marketing is that we have a large portfolio of games and we can reallocate budget where we see the best returns and constantly make changes over time. And that allows us to kind of navigate a shifting environment. I think also the fact that we're able to do offline campaigns on television and leverage iconic celebrities into the games as well as in the advertising, helps us as well with customer engagement. So we continue to navigate the market and execute.

Aaron Lee

Understood. Appreciate all the color. Thank you very much.

Operator

Thank you. One moment for our next question. Next question comes from the line of Brian Fitzgerald of Wells Fargo. Your line is now open.

Brian Fitzgerald

Thanks. Maybe a follow-up to the last kind of train of thought on these AI-based marketing solutions. Can you give us a general idea of, are you deploying them? Are they permeated across your whole portfolio games? Are they running against the newly acquired studios?

And maybe secondly, are you seeing the leverage there that you want? And then the last part of the question is just, is the success you're having with these AI-based marketing solutions, was that impactful in terms of, hey, now is the right time to streamline the marketing leadership team?

Craig Abrahams

So I would not correlate the two decisions. We've been using AI tools for years to help our employees in a variety of places throughout the company kind of solve difficult problems and aid them in making better decisions. And so that's been going on for years. And I think what's really changing the marketplace is that there's been these great third-party tools that have been developed as well. It's able to further provide aid to the employees in terms of how they make their decisions. So I think there - it's been kind of status quo. Things are just getting better over time. In terms of the reorganization, it was a separate decision, as Robert referenced earlier.

Brian Fitzgerald

Okay.

Operator

All right, thank you. One moment for our next question. Next question comes from the line of Omar Dessouky of Bank of America. Your line is now open.

Arthur Chu

This is Arthur on for Omar. Thanks for taking the question. Is there any metric or statistic you share to help us probably quantify how much you're spending in user acquisitions in some of the newly acquired games versus games that are more mature. It could be like percentage of booking or any difference in terms of payback here or ROAs. I think anything at all would be super helpful. Thank you.

Craig Abrahams

No, I think if you look at the incremental spend year-over-year, a good portion of that was dedicated towards the newly acquired titles, as we're investing there for growth, I think we've called out Slotomania in the past as well as having increased marketing budgets. We're also seeing good results at Bingo Blitz and are investing there.

So I think in general there's nothing specific what we're going to call out quantitatively, but we called out last quarter the decision to invest more to help bring certain franchises growth opportunities.

Arthur Chu

Understood. Super helpful. Thank you.

Operator

All right. Thank you. I am showing no further questions at this time. This does conclude the question-and-answer session and the program. Thank you for your participation in today's conference. You may now disconnect.