Q1 2021 Sciplay Corp Earnings Call
Good day and welcome to the Si play first quarter 2021 earnings conference call.
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I would like to turn the conference over to jump on Basi Senior Vice President of Investor Relations. Please go ahead.
Thank you operator during today's call, we will discuss our first quarter 2021 results and operating performance.
A question and answer period.
With me this morning are Josh Wilson, and Mike Cody.
Our call today will contain statements that include forward looking statements under the private Securities Litigation Reform Act of 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 morning. The matures late to this call posted on our website and other 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 for the most directly comparable GAAP measure can be found in our earnings press release as well as in the investors section on our website.
As a reminder, this conference call is being recorded.
Replay of this webcast and accompanying materials will be archived in the investors section on our website at <unk> Dot com.
Also supplemental reference slides will be posted to our investor Relations website.
These slides are meant to facilitate your review of the company's results and to be used as a reference document following the call.
I will now turn the call over to Josh Josh.
Thanks, Jim Good morning, everyone and thanks for joining us.
And the first cargo, but he can share.
To execute on high level and deliver.
Our strong top and bottom line free fall.
We have some of the best talent in the industry and our consistently solid results are a testament to their hard work.
In addition to the strong performance its cargo we are evolving.
Future setting it on the path of long term growth as we expand into the $20 billion at Wal Mart.
First defining our revenue streams and growing our game pipeline.
Revenue grew 28 per cent and outperformed the social casino market.
That's driven by broad based strength across the portfolio and build on the gains we made in 2001 in particular I'd like to call on pulp cash cost.
Second consecutive quarterly revenue record.
EBITDA increased 32% to $46 million or per okay, and live op strategy produced sequential growth in our key monetization metrics and we achieved a record conversion at eight 1%.
Fifth consecutive quarterly record.
Continue to enhance our evergreen franchises with new features and content to keep our environments crashing engaging leveraging our data and analytics and our live op strategy should drive increased monetization on.
And you have to keep improving game is the foundation of our success.
Meaning our portfolio for 15.
All games and driving growth.
That is a prime example of this strategy.
Being fully be designed to capture the thrill and often chips any other life casino.
The new version is currently in soft launch in limited countries, we anticipate moving to a worldwide launch in late Q3.
The redesign for Mt Greater engagement, Ruby immersed in integrated meta game and improved their performance stability.
The advanced fly box strategy is anticipated to extend session time and drive frequency of play resulting in increased monetization.
The evolution of affected it's similar to the path of Jackpot Party and we expect great things from this team in the future.
The success of our game is underpinned by the sites like Ninja.
With the foundation and breakthrough and disciplined data knowledge and practices. The fact by engine drive for sustained growth for games and forms a product decision enables efficient user acquisition spend and fine tuned our ever improving live op strategy.
All of the five byte engine growth with each passing day.
Our ending collects and analyzes increasing amounts of data on the players' behavior, we continue to gain new insights and refined our approach enhancing the player experience and increasing our ability to gauge.
And ultimately monetizing our players first.
Oh, it is part of ball to other games genre.
As mentioned on prior partners, our strategy revolved around adding games and game genres are similar characteristics on demographics itself for casino, where we can apply our strength and our Si play engine to fuel growth.
And we are committing to diversify our revenue base, it's about $20 billion ethanol market.
Recently, we took an important step in this journey with the successful completion of the Tech wants a solitary credit adventures and on April 19th book to the soft launch phase.
Broadening our geographic reach and beginning to invest in limited user acquisition to gather more data on engagement and retention metrics.
While it is too early to give specifics our tech launch day showed excellent kpis in terms of stability and crafts free what's your the foundation for a scalable and sustainable game franchise.
Our cash locked pipeline is enabled by strong cash flow.
Core Suffolk Casino personnel.
Project, that's the net new games that will focus on delivering our new castle games in the second half of 'twenty 'twenty two is on track.
We expect to build a pipeline of games as we scale and we look forward to providing you updates and details on our progress.
On a no idea has.
As most of you likely know Apple moving partnered with for releasing Iowa $14. Five on April 26, and went back pain. The long awaited deprecation of the identifier for advertisers or idea for Iowa.
Our teams are diligently working in this new environment, but as a reminder, we don't anticipate meaningful impact more than 50 per cent of our revenue is generated outside of Iowa, Martin 70 per cent of our revenue comes from players already participating in our games.
And our current games are based on in App purchases rather than in App advertising, we've prepared for this change.
And as we do with all of our Evergreen games, we will evolve and adapt our user acquisition process and method to ensure we continue to attract new players into our game.
It's an exciting time to be part of this tremendous organization.
We have a salad for social casino games.
Continue to enhance those franchises throw our SIFI engine that keeps them fresh and engaging.
We are buying this expertise into our expansion into the casual space and will layer in additional opportunities through organic development and M&A.
We are moving quickly to evolve this organization, putting it on a long term path for sustainable growth and enhancing shareholder value.
Now I'll turn the call over to Mike Cody to walk through the financial information embark detail.
Mike.
Thanks, Josh this was another strong quarter of execution of monetization building on the games made on 'twenty one.
The teams continue to execute at a high level and we feel great about our performance on the direction we're heading.
In the quarter, we generated $151 $1 million on revenue, which was 28% higher than the prior year and above the estimated 22% social casino market growth.
Net income increased to $37 9 million versus $31 $1 million on the prior year.
EBITDA increased 32% for $34 8 million in Q1, 2020 to $45 9 million in Q1 2021.
Our EBITDA margin for the quarter was 34% in line with Q4 2020.
Our payer focus on live op strategy continues to be rewarded as our bell grew approximately 37% year over year for <unk>.
Seven cents from 49 zone.
Average monthly revenue per paying user increased 11% for $92.80 on payer conversion reached another quarterly record of $8 one per cent.
This quarter is yet another proof point that our engine continues to grow payors and increase their spending.
On the expense side, we continue to target user acquisition spend to breakeven at six months.
For our engine continues to drive efficiencies, we have lowered sales and marketing expense as a percentage of revenue to 23% down 80 basis points from the prior year on increasingly overall spend in dollars.
As we discussed last quarter Solitaire Pats adventure is expected to increase sales and marketing expenses, we continue to expect to spend at $6 million to $7 million on user acquisition in 2021 at the level of spend will ultimately be determined by the returns as we grow daily average users.
This spend will ramp up throughout the remainder of the year.
We also continue to expect that we'll invest $3 million to $4 million in additional R&D spend in 2021 as we build out the team that will develop our next game on the casual genre.
We believe these investments in marketing and R&D will have a high rois and are facilitating our diversification in the casual market.
As we expand our pipeline, we are creating multiple levers of growth and shareholder value.
This will cause variability, we reiterate our long term margin target of 35% in the coming years.
This contributes for scale.
Yeah.
In Q1, 2021, we generated $19 $6 million in cash provided by operating activities as our business continues to be highly cash generative during the quarter. Our net cash provided by operating activities was impacted by the timing of payments from our platform providers, which was partially offset by higher EBITDA.
Further net cash used in financing activities increased.
Taxes paid related to net share settlements on or the stock compensation plan.
We ended the quarter with $272 million in cash and cash equivalents.
Which was an increase of $3 $1 million from year end 2020.
At quarter end, our available liquidity, including our Undrawn revolver was $422 million.
We continue to expect that we will exceed the social casino market growth of four five per cent per eilers on krajicek estimates for the full year 2021.
As a reminder, from a seasonality standpoint for our second quarter 2020 benefited the most from the COVID-19 stay at home dynamic and as such will be a difficult comp or.
Our evergreen social casino portfolio has never been stronger and we believe our revenue diversification and growth strategy led by our investment in the casual genre will enhance our ability to deliver long term shareholder value.
With that we're happy to take any questions operator.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
My first question.
Comes from Bryan Kraft with Deutsche Bank. Please go ahead.
Hi, Thanks, Good morning, I wanted to ask you too if you don't mind first how.
How should we think about trends in the business as markets increasingly reopen this year are.
Are you seeing any changes in user behavior markets that have reopened to a greater degree.
Versus some of the other markets that have been slower to open.
And then separately you guys have talked about your revenue outlook in the context of the social casino.
Growth rate as you had just mentioned just curious how you think about your longer term revenue growth outlook as you expand into casual.
Do you think that that enhances your growth outlook and allows you to grow at a significantly faster growth rate than the industry.
Change, how you think about that growth opportunity for the business. Thanks.
Okay. Thanks, Brian So I think Mike.
Yeah.
I will start with the trial.
Well the good news.
Thanks.
The growth has continued to get normal we've seen actually more engagement in our games.
<unk> quarter over quarter, So I would actually say we are seeing.
We're actually seeing on games take over and people are playing them as a form of entertainment, whether or not they're going back to work on.
So for US this is a very encouraging sign because what it means is we just have more people playing even on the world is getting back to normal.
And Brian on your question for the long term.
<unk> talked about social casino being roughly for you all.
For four to four 5%.
For a growth rate, that's where most of our games are on it's about a $17 billion channel.
Expanding into the casual space, which are a much larger channel growth rates are projected anywhere from kind of high single digits.
For 20%. So we think there are some larger growth opportunity there and just by the standard.
We're not in that space, we will be able to grow faster as well. So we haven't set a specific target, but we do believe there is a large opportunity items.
Great. Thank you.
Our next question comes from Alexia <unk> with J P. Morgan. Please go ahead.
Hi, Thank you just two questions. If I can the first is you know why you continue to diversify revenue outside of Jackpot Party.
I think it was about 50% of revenues last year, I guess, where do you expect to see the the largest gains in in 'twenty. One and then secondly, if you can just comment on the M&A pipeline I know, it's a very competitive space right now I'm curious just how robust the pipeline is and how competitive it is to buy it at right now to get those jobs done.
Yeah. Thanks Alexia.
Mike and I are going to attack it again here.
Yes, as it continued to diversify jackpot party.
I would kind of thing.
We actually could not be more.
Hardy.
They've been able to.
Basically help us develop.
Got it.
Based on the outlook, while we were able to grow at a multiple on market and jackpot Party has been on now for call. It three years that net.
Can you talk for farm to market every year and we expect that.
Going into 'twenty.
'twenty, one 'twenty two and on.
We're able to put that model that you both goldfish free cash and we are seeing the zone.
<unk>, which now makes us very confident that we are going to be able to take that throughout our entire portfolio and so on.
At this point, we just we could not be happier about the growth of it.
Overall.
And on.
<unk>.
And then I guess.
Turning to M&A the questionnaires obviously.
A lot of opportunity on the M&A space, we think it's a very robust market right now.
These out there.
Through our due diligence on the ones that debt.
For most of them again as a reminder.
Based on how simple for groups that have similar demographics that have matched cultures that we think we can expand.
Sure.
Thank you.
Yeah.
The next question comes from Matthew cost with Morgan Stanley. Please go ahead.
Hi, guys. Thanks for taking the question. So I guess kind of dovetailing on on sort of the deeper engagement <unk> been seeing even as the world reopens.
On the absolute I think it looks like the absolute number of Payors are monthly payers that you had in <unk> was actually greater than any quarter except to queue.
That's pretty impressive numbers of people spending so what are what are the drivers. There is that just a result of kind of retaining these new cohorts and they become more likely to spend over time.
I have a follow up for that okay.
I mean, I'm going to probably break it into two parts one part first yes.
Even during the last year, we've continued to put out.
Are you engaging features in each of our game.
These features have helped to retain our players and payers longer and at the same point each day.
On a day that we get we get Mark D does that helps fuel our Si play on Gen <unk>.
Taylor the game itself to the user each individual day and this is allowing us to increase the chances of any given user makes a purchase on any given day.
And these two things combined that have been the major driver are on.
A number of payers basically monthly for the last 12 years, where we're seeing an increase as we go.
Great and then I guess kind of a kind of a kind of a separate but related question about UA there've been a number of kind of your peers out there who are doing more directly on the advertising side, whether that's doing some of their own bidding or mediation or both.
Is that something that you guys are considering from the UA perspective, and do you think that that's important.
So I mean, we continue to evaluate we continue to look for direct deals and different places where we have.
Very valuable users that we believe will work in our universe. We also do look at different ways of expanding our UA capabilities through tools like <unk> or other marketing efforts that are out there.
At the end of the day, it's about where can we find the most valuable users for the lowest cost and bring them into our universe. So we can maintain them on lots of site plans can take over.
Great. Thank you.
Okay.
The next question comes from Matthew Thornton with Truest. Please go ahead.
Hey, good morning, Josh wearing Mike a couple a couple of quick ones for me maybe.
Maybe first on.
I think we have a solitary credit venture you talked about you previously talked about commercial worldwide launch late in <unk>, just wanted to see your basketball reasonable way to think about it.
<unk> full year EBITDA margin, Mike I think last quarter, you talked about for Q 'twenty being a pretty good approximation to kind of go with just want to make sure. That's still the case and then just third really quickly on the cricket redesign based on what you've seen kind of what we see in the data around the goldfish redesign which has been very successful.
First of all is there any reason.
I Couldnt see a very similar outcome with quick hit or said differently is that not a pretty reasonable way to think about modeling out the cricket redesign didn't hear you.
Color there thanks guys.
Okay.
So I think Mike and I are gonna tacking on again for this book.
Yes, I believe the timing is exactly what you are saying right now we are focused on.
Retention and engagement to make sure that the economy is where.
Where we need it in order to do a lot for scale.
We're also doing testing to ensure that we're able to find the cohorts for people that may cause some other sense of scale the game.
I think the timing that youre talking about like Q2 is very close to when we will start.
For better for better for worse pushing on the gas.
Start moving there for.
For the quick can't redesign I I believe that is a really good model.
Yeah. It did.
Start with Jackpot party.
Quick our goldfish, followed very very similar model and growth to jackpot Party. So we do believe that quick Kevin Berry.
Very similar now it is different players and it is for.
For a game from being a alley game.
W. S game, but at the same point, we do we do believe that this is.
We've made.
Type of growth rate.
And on your last question on the EBITDA.
Yes, yes, we do still continue to expect.
Oh my.
For Q1, we're at $30 for them. So we do expect that to be a good guideline for this week.
Perfect. Thanks, guys.
Yeah.
The next question comes from Aaron Lee with Macquarie. Please go ahead.
Okay.
Hey, guys. Good morning, Thanks for taking my question.
Most of my questions have been answered or asked already foot.
I just wanted to talk a little bit more about them.
Cohort that you've gotten since COVID-19.
As you noted two two last year was when we saw most of that stay at home benefit.
Can you talk a bit of a bit more about what you're seeing from ex COVID-19 cohort in terms of spend and retention has their behavior have been any different than past cohorts.
So Aaron Thanks for the question.
The individual cohorts that were during the height.
During the height of COVID-19, they absolutely performed well and they continue to perform well.
Actually while the entire country was caused out as the country started to open up they weren't too are a lot closer to what normal was.
A benchmark for COVID-19.
Since that point for work all of the new cohorts coming in are actually outperforming.
The cohorts that were pre COVID-19, and we believe that mainly because.
The new features that we were able to put into the games and the evolution of the pipeline and Jim. This is what makes us very confident.
A new baseline.
Going forward that we're going to.
Debt drive to grow EBIT.
Okay, great. Thanks very much.
The next question comes from Ryan <unk> with Craig Hallum Capital Group. Please go ahead.
Good morning, Thanks for taking my questions, you mentioned ex expectation to outpace industry growth of four 5% on the social games. This year is that specific to your social casino games with the additional contribution from the casual games or was that an overall revenue statement.
Yes. It is.
Social casino and as you know.
Right now.
The actual.
Cash flow space in any way with shelter pets as Patrick just launching and so we expect that to be a slow ramp and not really be again immediately.
I mean for a number for 2021, so it's really a statement on.
How does the existing social casino business.
Great and then in your prepared remarks, I thought you said that users continue to grow kind of even ex COVID-19 reopening happens.
But looking at your average M. I used to use they've been declining. So I guess can you clarify what you're seeing on user kpis and in that statement.
So I think the better way to say it now that our games are more mature and we're able to get more and more meta features into them. We are more focused on the number of players that we're able to create and maintain over time and that we are looking at the non payers and how do we convert them into.
So we're less focused on me on that you and much much more focused on the monthly paying users.
Because this is the group that we expect to grow quarter over quarter going forward.
Got it one more for me, so obviously tough year over year comps, but any reason revenue should grow sequentially off of Q1.
So now as you recall on our last.
So we did make the statement that would you expect revenue growth sequentially quarter over quarter in 2021, but we certainly don't expect to beat Q2 of 2020.
Great. Thanks, guys I'll hop back in the queue.
Thank you.
Okay.
As a reminder, if you have a question. Please press Star then one.
The next question comes from Mike <unk> with Goldman Sachs. Please go ahead.
Hey, Thanks for so much for the question I was just wondering if you could talk a little bit about the potential impact from the growth in non gaming on social casino industry growth.
And then separately I was just wondering if you could talk all about how your VIP programs.
You may have evolved because of COVID-19 are there.
There any in person events that are now kind of shifting more towards digital.
Yes, any color there would be helpful. Thank you.
Okay. Thanks.
Thanks, a lot Mike.
So I would say at this point I gaming has had no effect on our hardcore business for our growth has been that on.
In some ways, it's actually a benefit because it's another way that brands that are inside of our games are being advertised they're getting noticed.
We've actually seen somewhat of a benefit there for their brand recognition side. So are we.
We're actually very excited for the I gaming to continue spreading throughout the U S.
As far as the VIP program Youre, 100% correct.
Yeah. The one thing that COVID-19 did do is it. The fact that you can now do virtual wall.
Virtual concert you can do virtual gatherings.
And a lot of our Vips are very happy about it.
So right now we are focusing on that do I believe that someday there will be some in person events, probably but we probably will never get away from the virtual ones also as we're able to get more people from around the world.
To get there and they seem to really enjoy that communication with their fellow side players.
That concludes our Q&A now I'll turn it over to Josh for closing remarks.
Thanks for joining US everyone. We really appreciate your support we are truly excited to be charging the evolution of Si play as we expand into cash and build out our pipeline of games. We look forward to updating you on our progress during the second quarter earnings call. Thank you everyone.
Thanks again, everyone for joining us on our one quarter earnings call.
This is the operator.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.