Q4 2020 Sciplay Corp Earnings Call
Okay.
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Good day and welcome to the Si play fourth quarter, 'twenty and 'twenty results Conference call. All participants will be in a listen only mode and you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. You ask a question. Please press star.
And then one on your Touchtone phone to withdraw your question. Please press Star then two we ask that you. Please limit yourself to one question and one follow up at that time. Please note. This event is being recorded I would now like to turn the conference over to James von Basi. Please go ahead Sir.
Thank you operator during today's call, we will discuss our fourth quarter and year ended 2020 results and operating performance followed by a question and answer period.
With me this afternoon are Josh Wilson, and Mike Cody.
Our call today will contain statements that include forward looking statements under the private Securities Litigation Reform Act and 1995.
These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call.
For information regarding these risks and uncertainties. Please refer to our earnings release issued earlier this afternoon and mix.
Moving to this call posted on our website and.
And our filings with the SEC.
We will also discuss certain non-GAAP financial measures.
A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings press materials as well as the investors section on our website.
As a reminder, this conference call is being recorded.
A replay of this webcast and accompanying materials will be archived and the investors section of our website and Si play Dot com.
Also supplemental reference slides will be posted to our Investor Relations website E slides and meant to facilitate your review of our results and be used as a reference document following the call.
I'll now turn the call over to Josh.
Thanks, Jim.
Good afternoon, everyone and thanks for joining us.
2020, and what's really a great new aircrafts and likewise, our strong execution drove record results. We grew annual revenue by 25% outperforming the market and increased our eight EBITDA by 54 per cent to $189 million, our core business remains healthy.
And we continue to strengthen our evergreen franchises with new features and content that are driving player engagement.
While we are pleased with this year's results we.
And we see additional opportunity to continue growing our core business, while making a firm commitment to diversify our revenue base and to the many billion dollar cash won't market.
We generated record operating cash flow out of that share with us and Eric and.
And 93 million, which enables us several avenues to further expand into adjacent genre.
Our financial success in 2020th part of the track record of delivering sustainable growth and margin expansion.
If you look at our growth from 2017 to 2020, we grew revenue at a 17% CAGR and EBITDA at a 40% CAGR.
Strong margin expansion.
The basis on best growth, what's our per focus and live op strategy to that and we achieved records across all key player and metrics in 2020 further strengthening our evergreen social casino and franchises.
And in addition to our financial success, we closed on and our acquisition that come to play.
And we're named the top social casino complaint by ILS and Krajicek.
Brought on some of the industry's best talent, and we're able to get back to our host communities with programs.
Park, together and partners like twice for Tot and direct relief.
And I attribute the success to our amazing team.
Around the world They responded and new challenging environment like champions and we shifted to an entirely remote operation they didn't Miss a beat and executed and delivered on our live op strategy with new features driving higher conversion and monetization.
As a result, our core evergreen games are healthy and growing and driving revenue with key metrics exceeding pre COVID-19 levels.
And May recall, we made and the best friend and Tech stability and quality late Q4 2019.
And into Q1, 2020, leaving our games and a good position when stay at home orders per day.
Additionally, we consistently update our evergreen franchises with new features and new content to keep them fresh and engaging.
Similar to trying a day for the first time, a returning player can have a whole new game B all and <unk>.
Experience, but within the comfort of a game they already enjoy true.
Add further color and force some of our new investors on the call a franchise like Jackpot party has more than 250 slot titles with and became <unk>.
And the slot title roster as frequently updated what hit titles rotating in and out of the game day.
Ongoing efforts to keep improving these games is the foundation of our organic game pipeline strategy.
This approach and Black Jackpot party our oldest.
And largest game, which increased revenue by 33 per cent and 2020.
In previous quarters, we discussed and effort to invest and certain game teams in order to increase development throughput by replicating the team structure of Jackpot Party we.
And we created and more dedicated focus on live ops long term features and tech quality by adding key team members I am happy to say this effort is providing tangible success.
First goldfish experienced its highest ever revenue quarter and Q4.
The team added several new daily events, including a collectible item feature called greedy group on this.
These new live up features resulted in longer session times increases and spend.
Higher average bets more payors and more per transactions.
For those of you who aren't at a goldfish players I'd encourage you to come check it out yourself.
Second we recently launched a new version of quick hit slots.
This includes a more comprehensive meta game and increased live ops capabilities.
We will discuss further details of this effort and upcoming calls as we are currently expecting thats, new and improved version should be launched worldwide by Q3.
And so one thing I am really excited about is our push to expand our presence and the castle and the genre.
Our expertise and data analytics and user acquisition and live ops, homed and social casino games with a simple core loop mechanic translate well to the casual genre.
Recently beta launched Solitaire Pet adventures with our fall launch on track for Q2.
Our strategy revolves around moving into genres, with similar characteristics and demographics and social casino or we can apply our strength to fuel growth.
Had success with this strategy already with our casual game Bingo showdown and.
No single, it's not a slot game, but it does have a similar game play or simple core loop and dynamic.
As we execute this strategy, we will continue to add depth to our talent base, providing a path to build out and new casual pipeline true.
And we will be starting a new game studios that will be focused on delivering a new casual game and the second half of 'twenty and 'twenty two.
Currently we referred to this game as project backs and.
And as we progress we will provide updates and details on future earnings call. Our casual pipeline is enabled by the strong cash flows of our core social casino business, which provides the opportunity to concurrently explore M&A opportunities and organic new game development.
Now I'll turn the call over to Mike Cody to walk you through the financial information and more detail Mike.
Thanks, Josh.
And Josh as comments 'twenty and 'twenty was a great year on a number of fronts focusing it on the fourth quarter, we generated $147 $1 million and revenue, which was 30 per cent hotter than the prior year and above the estimated 26% market growth.
Net income increased to $31 million versus $28 $6 million from the prior year, including a $6 $1 million increase and share based compensation.
EBITDA increased 40% from $32 1 million and Q4, 2000 $19 million to $45 million and Q4 and 2020.
For the full year, we achieved our highest revenue and EBITDA ever at $582 $2 million and $188 $7 million respectively.
We achieved very strong results and essentially all financial metrics from the fourth quarter and broadly speaking the business remains very healthy.
On the stay at home dynamics has dissipated from its peak in Q2, our social casino games and focus on payers have been rewarded as key kpis remain above pre COVID-19 levels.
For example, opt out and the fourth quarter grew approximately 26 per cent year over year to 63 from 50 cents average monthly revenue per paying user increase 4% to $91 40 and.
And bear conversion reached a quarterly record of seven eight per cent.
To sum it up and you works and we are seeing our peers growth and they're spending more.
On the expense side, we continue to target user acquisition spend to breakeven at six months, our ever improving engine drives efficiencies and we lowered sales and marketing expenses as a percentage of revenue to 22, 9% down 480 basis points from the prior year.
As we launched solitaire pets adventure and expand our pipeline, we do expect to see an increase on our sales and marketing spend both in dollars and as a percentage of revenue the level of spend will ultimately be determined by the returns as we grow DAU. We currently plan to spend $6 million to $7 million on user acquisition for solid share, perhaps adventure and 2021.
The spend will start small and ramp throughout the year.
Our business continues to be highly cash generative, which provides us with the resources to pursue our revenue diversification strategy and <unk>.
'twenty and 'twenty, we generated $193 $4 million and cash provided by operating activities, which represents an increase of $104 million over 100 per cent from the prior year.
We ended the year with $268 $9 million and cash and cash equivalents, which was an increase of nearly $160 million from year end 2019.
At year, and our available liquidity, including our Undrawn revolver.
$418 $9 million.
Looking ahead from a full year 'twenty and 'twenty, one we expect to exceed and social casino market growth of one five per cent per hours and project estimates.
Additional notes for the year at first as a reminder, from a seasonality standpoint, the second quarter 'twenty and 'twenty benefited the most from the Covid stay at home dynamics and as such will be a difficult comp and second on them.
Margin perspective, we will start putting the aforementioned marketing muscle behind soldier bus adventure and getting into second quarter, and our research and development might not and will include a new game cheap.
Currently plan to invest $3 million to $4 million into the C V and team in 'twenty and 'twenty one.
And we expect these investments to have a high return and expand our position and the casual market. While this will cause variability in the interim we reiterate our long term margin target of 35% and the coming years as the business continues to scale.
We believe our foundation and social casino with our portfolio of established Evergreen games built on high quality can casino floor contract is unmatched and coupled with our highly talented team and engine that powers. Our growth. We are positioned perfectly to continue to scale and expand further into new genres.
With that we're happy to take any questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up and then.
At this time, we'll pause momentarily to assemble our roster.
And the first question will come from Alexia <unk> with Jpmorgan. Please go ahead.
Thank you and just a couple of questions. If I may the first one kind of a bigger picture question on the social casino.
And generally we're seeing a fair amount of companies come and public and the space and I'm wondering if that changes the competitive landscape for Si play at all and maybe you can comment on how you see <unk> position now versus at the time of the IPO a couple of years ago and.
And then my follow up question and it's really just on M&A and in terms of acquisition sort of you know really well how are you looking to is the next area and further development ought to come to play and you know and and maybe you can elaborate about and how you plan on further expanding the IP you're already on.
Okay and I have actually this is Mike Cody.
Yes, it's interest and you're right. There's a lot of companies that have gone public recently and I believe.
Seven of the top 10, and social casino companies are now all the way.
And from our perspective, we actually this is Paul.
And the thing.
More people, telling me the same store and that we're traveling the reinforcing the message on evergreen games and so we don't see a downside to this we've been competing against these companies for years. So from a competition standpoint really no difference.
M&A front.
And I Wonder if my first.
On a casual game for us going forward as we're looking further on the casual we focus on casual games as well as social casino and we're looking at a process on iron spectrum in terms of small companies, even small up and come to play and we may look at Aqua hires to larger more transformational acquisitions as well.
Formula question on IP can you clarify on a question on IP.
And try to answer that one and you just to elaborate and you gave us some detail, but maybe you can elaborate further on and how youre looking to expand the IP already on.
Okay. So in terms of the STI and see I think that what you're referring to yeah yeah.
Okay.
As you know we have the rights that perpetual exclusive from the first three years post our IPO.
And at this point is to use that IP and pretty much exclusively and the games that we have today as we expand into casual and I do have a little bit less value and that's really more social casino based on it.
And so we'll continue to add that into the games.
Josh mentioned I believe over 250 titles from Jackpot Party and so we're always rotating those titles and and we want to make sure. We have a long runway of IP to Gpus, and the future and with over 50 and have entitled and believe we have that.
Alright, Thank you very much.
The net.
The next question will come from Matthew Thornton with a true and Securities. Please go ahead.
Hey, good afternoon, guys. Thanks for taking the question.
Maybe first.
Yeah, maybe for Josh on on Pingo excuse me on the Solitaire titles.
How would you have us think about the size of that opportunity is bingo showdown and good.
Proxy in terms of what the opportunity could look like there.
And just secondly, maybe for Mike you talked about the 35% margin target can you remind us I think there was a five year target. When you guys came public so that would make it somewhere around like 'twenty 'twenty four and you want to make sure that I that I had that right. Thanks guys.
And thanks, a lot and Matthew.
And how great question on the solid per I think the better way to look at it and a try.
And that compares solid per patron metric bingo and like Mark compared to other solitaire games that are currently on the market.
And the major difference between our particular game and ours and theirs is the difference between Klondike solitaire compared to try and peet's or a fighter and there are a couple of really good.
Comps out there with like France harvest try and peaks Oh.
Some of them aren't doing very similar magic games around a simple core loop solitaire game and we believe this is the potential that our game has a bunch, we're able to ramp and the market.
And then on EBITDA, we gave you reiterate our 35 per cent long term target and we still believe that that's valid however, and you.
And social casino, we are marching towards that 35% no issues. There. However, we have mentioned from investments were going to be making in 'twenty and 'twenty, one and the social casual space. So as you think about 2021 margins I think you know look on Q4 'twenty is a good proxy for the year. It was 36% we would anticipate seeing some.
And that range.
Near term, but that and continuing our march towards 35 per cent as we scale.
Operator, we'll take our next question.
The next question will come from Matthew cost with Morgan Stanley. Please go ahead.
Hi, everyone. Thanks for taking the questions two if I could so it looks like Payors were actually up sequentially and <unk> and and just below where they were and <unk>. So it seems like you know payers that number looks really strong even though as you got six plus month beyond kind of the peak.
And of the Covid impact in Q2 from this.
Wondering kind of what were the drivers there and then how are you seeing those those payers behaved as we start to move into into 'twenty, one out of that holiday period, and then the second one interest on project X. I was wondering if you could tell us a little bit more about that studio and how you are balancing decisions about when to start new studios and invest internally versus a person and stopped inorganically.
Thanks.
Thanks, a lot Matthew so from the payers from the Payer's point of view, 100%.
If you remember and past, earning calls we spoke about how we made our investments and technology and too far at 19 Q1 of 'twenty and really got all of our games healthy, which allowed us to 100% focused on live ops and new features.
Saw the fruits of that labor through Q2, three and Florida last year.
And with some huge features released from both Jackpot Party and golf cash.
Yeah, goldfish, which and if you remember in the second half hour.
And our project I'll start on.
And Oh, sorry, what was it.
And of our project I'll start where we were able to build out the team and then also update not only the technology, but the foundation of the game. The game was running at full speed going into Q4 of this year were had all time records across revenue and payers and we believe this is the new baseline for that.
And just going forward and so we continue to grow from there over time from.
On the project tax standpoint.
It's kind of on to fall. So that first of all it was you know as we were doing all of the investments and our current organic game sweeps simply focused on new talent onto those games and <unk>.
And we felt better and better about the future. We started looking at how do we expand.
Their studios and two more Marc highlight and in order to fill out on.
As far as like what direction laid off from there, it's really going to be based on probably one or two things watch on.
And that's simple core loop logic, we already have on on on hand, today, and whether or not that's something and the solitaire world or maybe even a single world or what type of talent, we are able to bring in and from the design standpoint, or technology standpoint to open up more avenues and I think at the end of the day.
And one thing we're very excited about and we feel extremely confident and we can take the simple core loop plug.
Plug them into our monetization UA and live ops, and Jen and guess at.
And that social casino type monetization and we are seeing across our portfolio.
And one point of clarification back on Josh is first part of the answer project. All Star is our internal name for adding development and throughput and coffee and that the structure of jackpot party. Each other teams just in case I got on a call last time.
Thank you Mike.
Got it thanks.
The next question will come from drew Crum with Stifel. Please go ahead.
Okay. Thanks, Hey, guys. Good afternoon. So it looks like jackpot party represented more than 50% of your revenue last year can.
Can you talk about what your expectations are for that game. This year, and then separately any trends learnings you're willing to share.
What you've seen during testing of solitaire paths as you move closer to that ramp for that launch rather thanks.
So far the jackpot party I I'll start by saying, we could not be more excited with the year that we had and 'twenty 'twenty on it.
It made us extremely more confident that our decision to a copy of that team structure and copy of that technology roadmap will make us more successful on the future.
We have the same expectations per jackpot party and we expect it to continue being a market leader and continuing to outperform market growth.
We have one of the most talented teams and the world running the game on a day to day basis.
And so from those arent sorry about that from the learnings thus far on at this point we are in technical.
And launch on it so we don't have engagement metrics on it that we would have us well and I would say right now is from a technology standpoint, the game and as solid as we can help them be and is beating all of their benchmarks that we attach hard.
And we don't we do not believe that the top watch will be delayed.
And which we still have coming and Q2 of this year.
Operator, we'll take our next question.
The next question will come from Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon, and thanks for taking my question and congrats on the results.
Mike you were.
And enough to mentioned that debt for 'twenty and 'twenty, one and you plan to exceed.
Eilers estimate I was wondering if you could help a little bit on a seasonality basis, just kind of looking back over the past couple of years. The seasonality was obviously different and what we saw in 2021 and so could you maybe help us a little bit just think about what.
You know that should look like from from a rank order standpoint, obviously benefiting from from Solitaire and some of the the live ops that youll see on the back half.
Yeah, absolutely, so obviously pre COVID-19 and seasonality right was very different.
And typically you would go Q4, Q1, Q2 Q3, roughly about the same and.
And so obviously Q2 was much larger last year, we don't expect to repeat that and our prepared remarks. We also mentioned that there will be a tough comp. So if your stock price keep again for next year, you will expect to be back.
Back end weighted with Solitaire, Patrick venture launching with a new quick hit coming out and things of that.
And that nature, so probably end of Q4.
Interesting to see how and again in Q3 and Q2 versus Q1, but I think we expect to see some sequential growth in all quarters.
Okay I appreciate that and then any updated views on Apple's changes to idea far and and how that will impact you.
The outlook.
And as of today. We are we are very confident that it will not have.
Any negative impact to our outlook, we have that preparing for this change now going on nine months. We believe we are ready for.
Are the changes that are going to happen and what the idea and as it changes nothing S K and networks.
But like I said, we believe we have everything in place that when they make that change it special and it goes live we will continue to be able to efficiently run and our marketing spend.
As we have been doing for the last few years and if you think about how our genes cohorts have been built over the years a lot of our monetization comes from parents, who have been in the game from many years, including again My Jackpot Party has more than 50 per cent of its revenue coming from players within the game since 2015 or higher.
Obviously true.
Yeah.
Okay. Thank you both appreciate it.
Thank you.
The next question will come from Ryan and signal with Craig Hallum Capital Group. Please go ahead.
Good afternoon, guys. Thanks for taking my questions.
Just curious on the decision to start a new game studio to developed casual games on a project X versus using and come to play or even existing and stack play studios.
Okay.
Ryan I mean tactically, we may use that come to play studio on one of our existing studios. So I think the way and that we would think about it and we made a built out and Austin Cedar falls our talent.
May and utilize the development center and key at I think the part that we look at it is what we are saying is we're going to internally have resources that are from our SIFI and team are bringing someone on external and mark and I built out from the beginning ownership on not only at the.
And I in document technology and that all the way through the launch phase, but it may end up and any of the locations, which we will.
Talk about it and later calls.
Got it that's helpful.
And then you talked about quarterly cadence on revenue just thinking on margins. It sounds like cost per project X as well as UA for soldier Petzel ramp throughout the year. So is it fair to assume kind of sequential declines and.
EBITDA margin throughout the year.
It really depends on kind of on our sales and marketing spend and I. We're seeing returns. There. So you will see fluctuations in our core business.
I you know I don't think it's going to be materially different by quarter and again using Q4 'twenty.
And as a proxy.
Great. Thanks.
Thanks, guys.
Operator, we'll take our last question.
Your last question will come from Mike and with Goldman Sachs. Please go ahead.
Hi, Thank you very much for the question she.
And as a lot of cash building up after some from strong cash flow, Jennifer Krish, and particularly this year and I was.
Just wondering if you could talk a little bit about your M&A strategy. How aggressively are you guys seeking to roll up another studio after the come to play acquisition. Thank you very much.
Yeah, Thanks, a lot Mike so.
And it's it's hard to say so there are a lot of companies that are out there are companies that are out there some of them and are very promising and have not on the amazing growth amazing balance sheets out there I do think that we want to continue focusing on companies that fit our core math our car.
Our core process going forward. So you know something and that simple casual I'll field that has a simple core loop that we can plug our engine and <unk> and help them grow faster than they were a one plus one equals more than one more than two.
And then on top of that you know, making sure that we're finding companies that that site place culture. So we have built a culture of.
And not only wanting to one win but wanting to win together and making sure that any other coffee and that we bring and plugs and not only and then number side, but also plugs and on the on the culture side as a whole.
And I think we will continue to be extremely active and looking and evaluating every at every option that is out there, but I do believe that it has to check those first two boxes and order a part to be something that how we would proceed on.
Thank you very much Josh and I appreciate the thoughts.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Josh Wilson for any closing remarks. Please go ahead Sir.
Thank you for joining everyone today, and we really appreciate your support and we are truly excited for 'twenty and 'twenty one as we continue to grow organically and continuing to expand our presence and the casual segment. We look forward to updating you on our continued progress.
During the first quarter call. Thank you and have a great day. Thanks, everyone for joining us on the call will be available after the call for questions.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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