Q4 2020 Playtika Holding Corp Earnings Call
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Q&A, you gentlemen, and thank you for standing by and welcome to the fourth quarter and full year 2020 financial results Conference call.
At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question during the session.
Need to press Star one on your telephone please be advised that today's conference is being recorded.
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I'd like to hand, the conference over to your Speaker today, David Neeleman, Vice President Investor Relations and capital markets. Please go ahead Sir.
Welcome to everyone and.
And thank you for joining us today for the fourth quarter and full year 2020 earnings call for Blake Chico holding corporation join.
Joining me on the call. This afternoon are Robert and to call co founder and CEO of play Chico, Craig Abrams, <unk>, President and Chief Financial Officer, Eric Wraps, Vice President of corporate development, and Troy Yankee Chief Accounting 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 rather are subject to risks and uncertainties some of which are beyond our control. These.
These forward looking statements apply as of today.
Should not rely on them as representing our views in the future. We undertake no obligation to update update these statements. After this call.
For a more complete discussion of the risks and uncertainties. Please see our filings with the SEC.
I will now turn the call over to Robert.
Thank you David and thank you for everyone to join our first earning calls I'm really excited about it.
The way I'd say it from school at the IPO was it nine months ago. It was a major event in the history and the first I want to take a moment to thank our employees about the amazing job that they're doing in the last 11 years working with me walking around the pressure growing the revenues growing the company at building <unk>.
Sure.
We have in there.
Of course, it will tend to play out.
The blender old games with millions of players around the world playing our games.
We would keep all emission soybeans affinity ways to play into it.
A big pleasure to I won't play is so a little bit background about play pickup. So the company was established actually almost 11 years ago.
I was one of the phone bill.
When you look at the 11 years, we have Q.
Main thing that I would like to see.
Unbelievable growth, we started to grow our revenues and to be cash flow positive company from day. One. This was always our focus every dollar that we invest we tried to understand how we're making more money from this dollar. So this was our first.
One of the main P&L fleet pick up the second the second Big thing is this.
Musicians, that's what we did in the last 10 years.
We did different kind of acquisition, we acquired the companies we acquired a small company, but they a comet two August acquisition did with huge success with them and they will be speaking about the habitually do a one more important stuff. When you look at the portfolio State you got most of it will get most of our games, though evergreen games.
It's not games did go to disappear tomorrow is no gains at the edge.
It's it's coming and going up to one year, you should again see a prolonged.
The last thing about political that's nine of the top 100 grossing games in the U S market play to go to games. This is unbelievable you cannot compared to any other company. This is very unique for us and we are really excited about it and want to bring more gains to the top hundred so wait so why why do you say.
Unique about lately.
So as I said before we will always looking to grow revenue. This was our main focus from day, one to grow revenues and to be cash flow positive company.
So we did buy stuff first operation we knew how to operate Gabe. This is when we started to operate the old first against little menu. We thought to ourselves. This is again, it's going to stay for many years and actually it's not again, it's a plausible at this platform to their Costco to Omega and few Guangxi Donnelley 11.
Views in the room, so how we'd bebe's first operations second we look at data Lake <unk> is a company. They are taking decision all he doesn't he does that piece is what's important to us. This is where we are focusing that thought that that delta.
We speak a lot about data because this is something really close to us and this is something really make us a unique company.
Is the marketing will always be the really smart marketing, we never spent all the money with that understanding we never spend money without getting nothing showing with helping us to understand where to focus will always be and pudding.
So to take the operation did not take the marketing we built a unique unique E E. Operation that's called lives Oops everything together will help us move revenues to grow revenues by like light bulbs and with their lives and they took module play ticker and we establish a new.
Okay.
It is a new feature when you thought the feature is a.
A new division called play the caboose. So played the caboose, taking everything that <unk> did in the last 10 years it putting in one place all our students all the best feature all our technology and helping us to grow the internal game, but it's more important will help us to grow the game that we're going to acquire in the coming future.
And beef is what gave us a huge advantage on other companies. The last thing that the really importantly about US is the scheme, we're walking together more than 10 years, we have a very United.
Understand each other and give us the ability to run this company.
I think when we're looking at the potential of play ticker I think for us.
Important start to understand that we have more than 1 billion dollar per acquisition and this is why we are focusing acquisition as I said before we'd be seven acquisition and we're going to make it different acquisition, becoming a future second we know how to take games and to make them better.
The air Bridgend, it's weak while the last 10 years with Mckinsey.
Better.
We both company with zero profitability with view understand what is EBITDA and we make them huge profitable companies.
So.
To go beyond games, we always spoke about it we're always a deliberate and now with the technology that we're building, which played the caboose. We believe in a few years from now we can take big pickup beyond games, so to take everything that they spoke we're really excited about the future. We're really excited about being a public company philosophy.
The tool that will help us to grow our business it will help us to acquire more companies in there.
The people will know what displaysearch around the world. We are a different company. We are a data driven company. This is what we're doing this is what we did in the past and we are excited for the future now I will turn the call over Craig to discuss our operation and financial results.
Thank you Robert I'd also like to thank everyone joining us on the call.
I'll spend a few minutes reviewing some achievements and progress during the quarter and the full year 2020, and then speak to our financials and outlook.
Following that we'll open up the call for Q&A.
First though it was a Q1 event I also want to underscore our successful IPO last month.
This was a transformative event for our company.
We strengthened our balance sheet gained a public currency that can be used for both M&A and to compensate our employees and also raise the profile of play T got to a level commensurate with our many years of success and leadership within the mobile gaming industry.
We're excited to be a public company and to share our journey with our investors as we innovate and grow.
Turning to some highlights from 2020, we had a great year of achievements and progress I'm excited to share some performance measures of individual games on the call today.
Going forward, we will from time to time highlight performance of selected games, but this is not data we will disclose every quarter.
Our casual portfolio past $1 billion in revenues for the first time.
And within this group Bingo Blitz, and its 10 year anniversary or reaching record high revenue of $443 million.
This showcases our ability to continue to grow games that we've operated for many years and speaks to the sustainability of our franchises.
We celebrated this milestone and bingo Blitz with a 10 day program that included the new balloons booster feature along with daily celebrations and now there are in game events.
We also commemorated the anniversary with a five show placement on the Ellen Degeneres show.
During which the game was played live with the studio audience.
Salter Grant harvest also finished a record year, achieving $147 million in revenue and 95% year over year growth to become the largest casual salts our game in the world based on in App purchases.
In addition June journey had a record year growing 90% to $168 million.
Turning to our casino themed games, our largest games slot ammonia continues to enjoy success in growth even at 10th year growing 18% in 2020.
Like Bingo Blitz. This sustained performance is a testament to our scale and live ops and our ability to build long lasting franchises.
Additionally, in the fourth quarter World series of Poker added a new events layer that had significant positive impact on the games monetization.
These are just a few examples of the innovations and enhancements we brought to our games this year.
We have many exciting new features planned for 2021 and look forward to providing updates on our next call.
Finally, I want to provide a quick update regarding COVID-19, we continue to exercise caution to ensure the safety of our employees.
All of our locations are allowed by local guidelines to accommodate some workers to return to offices and limited capacities well Israel is open under a pod model as always safety of our employees our priority and we will continue to monitor the situation as it evolves.
Now I'll review our financial performance.
Our revenues for the fourth quarter of 'twenty 'twenty increased by approximately 17% to $573 5 million from $488 2 million in the same period last year.
The increase was driven by organic expansion and the continued rollout of new content and product features we were pleased with the continued strong year over year performance of slot ammonia.
Bingo Blitz, Solitaire grant harvest and June's journey.
We believe the growth benefit we experience from COVID-19 stay at home orders concluded during the third quarter and we believe that the peak of this positive impact was in the second quarter.
Overall casino themed games contributed 55, 4% of revenues in the fourth quarter, while the casual games portfolio contributed 44.6% growing by 10% and 28% respectively over the same period last year.
On a geographic basis, the U S contributed 69% of revenues with Europe, and APAC, contributing 15% and 9% respectively.
In the fourth quarter daily average users or da use were $10 5 million down approximately 5% from the prior year.
Average daily paying users of 272000 increased 10% over Q4 2019.
Turning to expenses total costs and expenses for the fourth quarter were $431.2 million up $36 $4 million or 9% year over year, but decreased as a percentage of revenues to 75, 2% from 89% last year.
We incurred interest expense of $47.8 million under our credit facilities in the fourth quarter compared to $42 $9 million of interest expense incurred in the prior year period.
In Q4, we reported GAAP net income of $76 million versus net income of $30 million last year.
Fourth quarter, adjusted EBITDA was strong at $210.4 million, representing a 24% increase over Q4 2019.
Our Q4, adjusted EBITDA margins were 36, 7%, which compares to 34, 8% in the same period last year.
This margin expansion was driven largely by the increase in revenue year over year and also our focus on cost discipline. As a reminder, our adjusted EBITDA includes an add back for the cash charges from our long term management compensation plan that was put in place when we were private company in lieu of stock based compensation.
This plan will expire in 'twenty 'twenty, four and from that point the primary adjustment to EBITDA will be stock based compensation.
The adjustments to EBITDA can be reviewed in detail in a table included within our earnings release earnings press release, which was distributed earlier today.
As of December 31st we also had over $523 million in cash and investments we increased our revolving line of credit to $550 million from $350 million as part of our IPO to provide more flexibility as we look to pursue M&A.
With our increased cash balance, which includes $469 $3 million in net IPO proceeds and combined with the increased revolver. We now have over $1 billion in available liquidity to support potential future M&A.
Finally, I'd like to provide financial guidance as.
As we looked at 'twenty 'twenty, one we have many new game content initiatives planned and have launched them already in January we are optimistic that should drive growth. This year for the full year 'twenty and 'twenty, one we anticipate revenue of $2.44 billion and adjusted EBITDA of $920 million.
In closing our Q4 performance was strong and the momentum of our business continues mobile remains the fastest growing segment within gaming, we continue to benefit from our focus on improving monetization and adding new content and product features. In addition, we are seeing the benefits of leveraging the boost platform and driving growth in <unk>.
Our acquired studios all of these factors led to an excellent fourth quarter and our first report as a public company.
With that we'd be happy to take your questions.
As a reminder, ladies and gentlemen ask the question you will need to press star one on your telephone until the joint question Monkey.
Okay.
Borrowers can Paul Walsh.
Our first question will come fine Brian.
Sandy you may begin.
Thanks for taking my questions I have I have two just the first one on that.
Payers and players that you saw come in in 2020, just curious are you seeing any differences in retention of those players or aging of those players or how to think about the way those people who came in and how they look now and the probability of them sort of sticking around and to 'twenty one 'twenty two.
Second one I had a question on the portability of the boost platform can you just give us some examples of some of the tools and the boost platform that have worked particularly well in the casino space that you think will work really well in the casual space and sort of keep those businesses growing thanks.
Okay. Thank you for the question again.
To me, it's a really exciting day.
First time on Nicole's question. So regarding the first question was about sales the sales yes. So we we we saw Q2 and Q3 jumping dramatically, especially Q2, but when we are now.
When we finished Q4, we saw the behavior or the players are the same behavior, we don't see any different behavior. We don't see that they are different immune cells that are the same players with the same behavior.
Actually after the huge.
Growth in Q2 and Q3, we are now right now in Q4, where we will run it running exactly as we expected and it's everything is walking to sing.
Regarding the second questions.
The most logical okay. So the boost platform I can speak about it was plus one of my more than one hour. So it's for me, it's something really close to what we are doing and B I think.
When we started there was the casino company and we start to move to casual everybody everybody thought. Okay. These guys know how to monetize it casino games, how they will monetize and casual games, but we showed everyone who show those sell first that is the same game. It's the same thing and then the idea of a play to caboose.
Game. So we can give you many examples but this small example is understanding the segmentation of the game. So today today, when you're playing let's say a local millennial or.
Because even though you have a different segmentation of the game in the casual would you say this was never exists. So now we have the technology the driven by AI. This one and complete the caboose get this can bring the segmentation to the new world too and begin to it doesn't matter. If it's casino game of casual game. If we wanted the same.
Thank you.
Two questions.
And our next question on Central line of Stephen Ju from Credit Suisse, maybe again.
Thank you. So a recurring question from investors seems to be around the M&A environment as it seems like.
Activity at least from a headline standpoint seems to be intensifying. So do you think valuations are starting to get unreasonable or is the list of potential targets starting to shrink and also you can now fund your acquisitions with equity as well as cash. So you know what's going on.
What's going to change or not change in terms of the parameters.
What kind of targets you may be looking at thank you.
Thanks Steven.
It's been obvious that the market has had an increase in activity throughout 2020 and consolidation continues and we've seen prices.
Continue to creep up I think we've been very focused on finding the right deals deals that fit our culture, our gels that demonstrate our financial discipline, we have a very broad pipeline of deals available to us and that we can acquire growing assets. We can acquire assets have been stagnant leveraging our live ops platform and boost our we've done turnarounds and so I think.
Because of that broad pipeline, there's a lot of opportunities available to us.
That may not be available to the broader market and so I think we feel good about our pipeline and.
And continuing to execute the way we have and also the fact that we're able because we're able to grow the assets through live ops and when you do that with our business at 97% in App purchases.
70% of that drops to the bottom line when you're drunk drive those improvements, which really drives EBITDA, which effectively lowers the multiples that we pay for these assets over time, and so we really focus on equity value creation and you've seen that across all seven deals we've done over the last 10 years.
You have a public currency that we can use we also have cash we can use and I think we're very focused on what can be most value, creating for our shareholders as well as you know what's the right structure for.
The partner entrepreneurs that we're partnering with them and so I think where we'll be thoughtful about that.
Thank you.
Yeah.
Our next question will come from the line of Eric Sheridan from UBS, maybe.
You may begin.
Thank you so much maybe just turning to the performance of the business and how you see it evolving distributes through the year.
The way, we maybe had been forecasting it looks like you've got a little bit more growth with little bit less sales of marketing spend that we would have thought can you talk a little bit about the broader marketing environment. All oral why it's evolving and how we should be thinking about marketing in return on marketing to drive growth as we run into deeper into the calendar 2021.
Were you obviously start to comp against the environment, we find ourselves in the 2020. Thanks so much.
Thank you for the question so.
Blake Clayton.
<unk> is a company that understand how to do you. A this was a this is one of our DNA you a but as you look at that will games, we are not depending anyway, we never been dependent in any way with depending in our monetization skills so well.
We're not looking to spend it's not that we don't have a number that we say okay. This quarter was spent a decent amount of them are we spending it with checking I was spent every week every day every hour well we are not spending regulatory money. We're very careful with this this was our DNA from day, one we are not growing.
We're getting we're going by Skus technology and the lives and this is really important to us to win because.
We are new in this world we are new in this industry and we so many different companies is growing by the way, but we are a little bit different I can give you. Another example of a company that we acquire the you announced a goal.
Call. It best suites, Baskin was growing six years by a by the way never been profitable never been EBITDA positive. This year, we've cut the budget.
The marketing Goldfield June Jeremy It was sorry.
Bed screen and this was the best yields the best seen it. This was the first time there will really profitable. So this is how we're walking well really careful and we are checking every dollar that we're spending.
Yeah.
We'll take our next question please.
Alright. Our next question comes from the line of Mike <unk> from Goldman Sachs You may begin.
Thank you very much for the question and congratulations on your first earnings report as a public company.
As you think about 2021 could you talk a little bit about your expectations for the revenue cadence throughout the year and whether there are any differences between your casual versus your social casino portfolio as you think about growth. Thank you.
Sure so.
If you look at our our casual portfolio and is the fastest growing part of our portfolio relative to the casino.
Our expectations are growth throughout.
<unk> is a tough comp relative to 'twenty, one, but we're still forecasting growth.
And in terms of the cadence you know what I think.
Usually the start of the year are were very strong roadmaps are and then we manage the air throughout so I. Thank you.
I don't think there is anything specific we point to either from a live ops event on our roadmap, our new product new product launch so I don't think theres anything.
That there's sort of a that's going to sort of provide some sort of pizza at the air it's usually for us a.
Very steady flow.
Products features whether it's new content monetization features retention features.
And a variety of other live ops things that we do on a on a sort of daily and weekly basis.
Great. Thanks, Craig and if I could just have a quick follow up.
Could you talk about any updated views that you have on Apple's changes to idea Fay and any initiatives that you're experimenting with to fill out those gaps in data that you might have thanks.
Sure Eric I'll take that.
Yeah sure so on I D S. A.
You know it's still.
Early to tell how it will impact.
And we're gonna be released.
The effect of this spring.
But I think there are a few things that insulate us more than others.
And Robert alluded to this earlier in addressing Eric.
Question, we are much less reliant on acquiring new users to grow our revenue show that's the biggest distinction between us and the market.
The second thing is that you know are.
A substantial part of our marketing budget is for re targeting.
You know our games have been around for in many cases 10 years Theres only so many more new users that you can acquire and so we've dedicated a lot of resource into bolstering that technology, where we're re acquiring former users and all of that is done beyond the scope of ideas so that wouldn't be impacted.
And then also we have our own proprietary platform. We're about 14% of our revenue comes from so that is also beyond the scope of I D. S. A and the last thing I would say is that if you look at our business. It's only about 3% of it comes from ads.
97% and in App purchases and I think because that's what is so you know predominantly in favor of in App purchases again, we're very insulated from any sort of negative consequences to revenue as a result of idea. Thanks.
Great. Thanks for the time guys.
And our next question will come from the line all from Stifel. You may begin.
Okay. Thanks, Hey, guys.
So the guidance for adjusted EBITDA implies some margin slippage can you remind us what's driving that.
And then separately during the road show you mentioned I think there were six to eight new games in various stages of development I know that was less than two months ago, but any updates you can share around the development pipeline.
Yes.
Hey, drew so in terms of margins there are some public company costs.
As stated with being public.
Whether it's D&O insurance additional headcount and some other costs and so.
That's one component there.
And I think anything else is really immaterial.
Can you just kind of look year to year over year in terms of roadmap Robert you want to take that one.
Yeah. So.
Regarding the new games.
I want to especially the two seconds about these two play together. So play began never focused on developing new games. It was never all of DNA in the last two years, we acquired few studios with the amazing history and success developing new game and we took this opportunity now right now we are developing few games in different.
Categories, we are checking them, we do better we are really excited about the appeal of the resolved, but this is only the beginning of this journey and the only and again, it's a new journey for us.
I believe that next year during next year, we're going to launch one game or two but the most important to understand that play to go always grew by the organic rules always we will focusing to make our games is a platform. So every feature that we had we put in the con game, noting that you get this again.
I'm speaking about the different attitude bled Zika and the other companies we are little bit different here, we never thought about well we want to develop a new <unk> said no we want to put more content in our current games, but this year again, we're taking we're taking this challenge and we're focusing the last thing I want to mention about it everything that we do.
Developing with develop on the boost platform every feature so even if we launch against gaming slot walking will we still can use this feature to our.
Going forward.
Expectation is just like we have historically is that we will continue to drive conversion.
Which will drive <unk> and drive growth and so I don't think Theres anything.
I know, we had very high conversion and Gpus in Q2 of last year, but I don't see any reason why.
We're not going to continue to grow throughout 2021 on those same metrics.
Robert you want to add.
Okay.
Yes wholesale so.
When we moved not moved when we add the casual division for <unk> success.
To.
To say a few words about the casual division we started the business.
Less than three years ago, and we did $1 billion revenues up to three years ago. So after we saw the success and we understand that actually we know how to monetize we know how to do lives there'll be it doesn't matter. If it's again also it's another digital product. So then the understanding of this.
Direction and with political boost that bringing all the technology and the features and experience.
Based on the AI activities.
Weighted to boost or something else that would allow that conversion rate to sort of stay high and sort of the two six range, even even as the world opens up. So if you could just comment on any other variables that sort of caused that bump and the sustainability of it.
First thank you for the question.
I asked a lot of.
Timing that bad and they are really happy to answer the question. So yes, we had there.
I would say a bump it by the Covid, yes, the COVID-19 it pulls the revenues so the secret it was their revenues for all other kinds of activities and determine activities.
But when we look at the conversion, especially on the casual and this is where.
But our real focus right now.
Yes.
It is still dependent COVID-19.
We are using the technology and the experience from the casino side to the casual and wear out of a conversion, becoming better and better and higher and again its bringing it to the story that I told you.
A few minutes ago, when we acquired the student that was driven driven revenues only by a user acquisition, we can be user acquisition and withdraw their abuse by conversion and monetization and live ops. So yeah. The COVID-19 help their business, but it's not the major growth to our revenues.
Okay.
Super helpful. Thank you.
Thank you.
Thank you and then last question will come from the line of Ryan Gee from Bank of America.
May begin.
Hey, good morning, guys. Thanks for taking the questions sitting in here I guess, maybe.
Maybe just for Robert could you kind of remind us of your strategic priorities between.
The casino in the casual businesses, which areas over the near to medium term should we expect a new games investments to focus.
Where we should expect M&A, if that's an opportunity for one or both segments and then where are you spending most UA dollars at this point going forward.
Okay.
Yes. Thank you for the question well first.
First I want to mention that where I live in fear of different categories. We are leaders in slots relatives and bingo well. It is a solid well it is in poker, while editing hidden object. So its not only casino and casual wear to the leaders in five different categories in the gaming industry.
But on the casual on the casino side, we already are.
It had been number one number three and number five so right now most of our focus around M&A is on the casual side. We believe there is more opportunity. There. We believe it will make the company more stable.
We believe that the the knowledge that we have been monetization lives from the casino can help us to grow the opportunities on the casual side. So.
Again, we are walking by opportunities good opportunities. So if we see a good opportunity.
Opportunity financial opportunity on the <unk> side, we will never say no, but I will focus today is on the casual side I'll focus today is to bring more new games more new categories to be a leader. If you ask me and you ask my management, we have one nishu, we want to be the leader in mobile gaming in the World. This is our mission.
We starting casino bingo Bulker announced solitaire and he didn't object and we're trying to get to be a leader in any different categories regarding UA spending.
<unk> said before we are spending the way we see good results. This is this is a political world doesn't matter. It's a casual look as you know when we have good result, good day.
Bringing the money back. So this is the place we're spending right now I can tell you that.
We're still spending on the casino side, but of course on the casual and we have more opportunity to spend.
Thank you.
Great and then maybe just a quick one for Craig.
<unk> revenue growth.
The past couple of years since spin.
And payers, but some pressure on <unk>. So can you walk through why that dynamic is and if we should expect to see that continue over the foreseeable future specifically year over year declines in arc.
Sure. So the ARPA was really a mix shift as we added the casual titles that are lower or down than the casino themed titles that mix shift and then in the large increases in Dia you drove down that arb down I think when you look at us.
Q4 was the first pure organic story right because theres no acquisitions built into it so when youre looking at Q4 year over year topline grew 17, 5% all organically.
Obviously going forward until we have another acquisition all of ourselves organics Youre seeing now.
No noise in terms of.
And looking at sort of pure.
Pure same store sales and so I think thats, the going forward will be much easier to see.
But really that shift that you were talking about as a result of product mix shifting.
Yes.
Thank you very much.
Thank you and I'm not showing any further questions in the queue.
Okay great.
Thank you every much for joining us really appreciate that.
Everyone, taking the time on our first call and looking forward to our next time. Thank you.
Super guys. Thank you so much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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