Q2 2021 Playtika Holding Corp Earnings Call

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Welcome to <unk> second quarter 2021 earnings call I would now like to turn the call over to David Neeleman, Vice President Investor Relations and capital markets.

Welcome to everyone and thank you for joining us today for the second quarter 2021 earnings call for <unk> holding Corp joined.

Joining me on the call today are Robert Happy call co founder and CEO of <unk> and Craig Abrahams.

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.

<unk> 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.

No obligation to update these statements. After this call for a more complete discussion of the risks and uncertainties. Please see our filings with the SEC, we have posted an accompanying slide deck to our Investor Relations website.

We will also post our prepared remarks immediately following the call.

With that I will now turn the call over to Robert.

Thank you, David and thanks to everyone joining us today.

Cited to provide an update to our current and future investors.

Indications are mission critical remains strong providing our players with infinite ways to play we are committed to delighting our players with the best possible Personalize entertainment offering and we will continue to use our creativity and technology will ship. This.

We are pleased with our results for the second quarter.

Political GUL hybrid news, 1.3% to $659 million you over to you and 3.2% sequentially over a strong Q1.

This growth is impressive for 2 important reasons first we experience very strong gross or 39% in the second quarter of the last few due to Covid lockdowns.

T sport, but I did for us was a difficult comp and I'm incredibly proud of our teams for this incredible performance.

I mean growth.

Experienced this quarter.

Second I want to highlight that the clause, we shipped this quarter was internally or gun.

The ability to sustain growth in our games for many years using our proprietary technology is a great example of what May play ticker, especially.

We believe we can apply these skills and technologists to our future games to repeat the success and to continue to create long lasting franchise that will drive our future growth.

If I had to use 1 girl.

This quarter it will be consideration sped out for August across several important areas I will highlight 3.

First we accelerated the time it goes with the global launch of our switch scrap game to fourth quarter of D. C U.

This assumes our commitment to a new game and we are excited that we are able to deliver on this well ahead of schedule.

Switch script. It just started even Mitch 3 style game developed by our Wugang studio.

<unk> 3 is 1 of the most popular genres in mobile gaming and we are proud of what got innovation approach to this genre switchgrass with offering you would take on Mitch 3 by adding compelling narrative low side the gameplay.

Testing of switch graft is going very well, allowing us to pursue a Q4 global launch with confidence.

With this launch we have accelerated our overall game development plan.

Now also plan to introduce another new game up to switch scoped at some point at 2022.

Second we continue to increase the percentage of our business that comes through our proprietary platform to over 20% of revenues up from nearly 13% in the second quarter of 'twenty 'twenty.

Revenue that flows through I will propose these platforms is not subject to a plateau license fee and hedged split Zika is she best in class emergence.

Finally, we are excited with the pace at which our casual game portfolio. It's gone through a present immediately even split of our overall revenue is shipping around 48, 5% of revenue this quarter.

All of this success increase our confidence and our ability to drive growth. Both in second half of this year and also for the long term.

Now I will spend some time reviewing a few of our many features and innovation we deployed during the second quarter.

Turning first to our casualty portfolio.

We continue to see excellent performance June journey continue to see the benefit from second season of detective leagues, He too high for the quarter in Q2 of 1.9 million players.

Bingo bleach is a great quarter growing 20% it'll be your the team's feature enabled but we're both platforms continue to perform.

Bingo bleeds and the new season of the room Splash and released small map rooms, and the collections best speech them.

These features which political play on news.

An excellent example of how our games have developed well beyond the original game mechanics, well finding our place it would offer entertainment.

There are so many ways to enjoy bingo bleeds with all the content that we have added beyond simple bingo.

They can go bleeds also benefited from a second campaigns of the songs she's bingo.

And our partnership with Doctor a field marketing activities.

[noise] Solitaire gun harvest grew phenomenally this second quarter going.

So depressing Q over Q, 'twenty, 'twenty, 1 and 60% year over to you for these games released in the second season of the my farm feature with a collection of items given away Masonic.

It also continued to benefit from our localization and marketing campaign in Germany and.

Which topped 25 mobile game grossing ranking in the country.

10% of the daily average users in the game now from Germany.

The success of this go how much potential we have to continue and just our games for local markets and to take shares in Gil beyond the U S.

The games in our casino portfolio continue to innovate in the second quarter well see the casino we introduced the chase.

We gave it real time progression.

The creation, while users and it is a great new capabilities do they make game.

The unique advantage of the chase.

Is that it connect with features and gives them when utilization Plano the ability to run multi day promotion.

The area of the game.

Chase is the next generation of <unk>.

<unk> journey capabilities and the result is both enhance players experience and also better absorption and control for all of them will position team.

In closing our momentum continued in the second quarter was sustained.

Fishing boats of all cash holding because you know what's folios.

And I'm very pleased that we have.

They've accelerated the global launch of switched crust.

I believe late because they're very well positioned in the remainder of 2021 and beyond now I will turn the call over to Greg to discuss our operation and financial result.

Thank you Robert I'd like to thank everyone for joining us on our call today.

I'll review, some financial and operational highlights following that we will take questions.

As Robert mentioned, we sustained our momentum in the second quarter, continuing to innovate and leveraging our boost technology to drive growth.

The fact that we're able to grow organically against the very challenging comp of Q2.2020 at the height of the Covid Lockdowns really speaks to the effectiveness of like do you guys model.

Turning to the performance of our game portfolios are casual portfolio continues to excel with second quarter revenue growth of 16% year over year.

Casual now represents 48, 5% of total revenue up from 42% in the second quarter of last year as we continue to execute against our goal of diversifying our total revenue base their expansion in new game categories.

Individual game highlights within the second quarter include revenue growth for Salto Grant harvest of 61%.

Blitz of 20% and board Kings of 18% all on a year over year basis.

Again, I'd like to reiterate how impressive this growth is when accounting for the outsized comp from the second quarter of last year.

Casino Queen portfolio showed relative stability down just 2.6% on a sequential basis.

We feel confident that our casino themed games will continue to perform well in the second half of the year based on our roadmap of features and promotions we have planned.

Turning to our financial performance.

For the second quarter was $659.2 million up 1.3% year over year.

Cost of goods sold declined as a percentage of revenue from 29.6% to 27, 9%.

This improvement was driven by the growth of revenue on our proprietary platforms in the second quarter to 24% of revenue up from nearly 13% in the second quarter last year.

This continued performance in Q2 has been driven by the successful relaunch of bingo Blitz on our own platforms and Q1 combined with a strong roadmap for bingo Blitz, and our first 2 quarters of the year.

In Q2, we reported GAAP net income of $90 million versus a net loss of $139.6 million last year.

First quarter, adjusted EBITDA was $264 million, representing a margin of 41%, which compares to 43, 5% in the same period last year.

Regarding the components of our operating expenses the year over year increases in R&D and sales and marketing were largely driven by increases in head count and media expenditures respectively.

We are investing for our future growth by hiring engineering talent and also with the marketing activities that we discussed on this in last quarter's call. We will continue to be opportunistic in how we allocate resources to drive growth as we evaluate new marketing channels and markets for our games.

As of June 30th we had over $1.1 billion in cash and cash equivalents and we now have around $1.7 billion in available liquidity to support future M&A, which includes $600 million of an undrawn revolver.

Our M&A pipeline is strong and we continue to evaluate opportunities, while staying vigilant of our mandate to create shareholder value by acquiring enhancing target assets and diversifying into new game categories for growth.

I would also like to highlight that we've crossed our 2 year milestone of acquiring super treat in that 2 year span. We have grown revenues 3.6 times over Q2.2019.

This is a testament to our M&A execution, and our ability to significantly grow assets at scale by leveraging our monetization capabilities and technology platform.

Finally, I'd like to confirm guidance for the full year 'twenty 'twenty 1.

With our toughest comps of 2020 behind us and a very solid first half performance. We are reiterating our full year 2021 guidance of revenue of $2.6 billion and adjusted EBITDA of $1 billion.

It's been an exciting 6 months since we went public the entire company is appreciated the opportunity to display our vision talent and drive on the public stage.

As we've tried to convey on the call today, we believe that many aspects of our business are going even better than we anticipated as we prepared for the IPO last year.

Due to this we feel the timing is right to host an analyst day to update the investment community with a deeper dive into our strategy and growth drivers for the next 3 years.

I'm pleased to announce that we'll hold our first analyst day in New York City on December 6.

More details will follow but please mark your calendars, we look forward to providing some exciting presentations and the opportunity to meet key management team members at that event with that we'd be happy to take your questions.

Ladies and gentlemen at this time, if you would like to ask a question. Please press star followed by the number 1 on your telephone keypad again, it is star 1 well pause for just a moment.

Your first question comes from the line of Brian Nowak with Morgan Stanley.

Hi, guys, it's Matt on for Brian. Thanks for taking the question I guess for switched crap. How is the testing going you know in any details of what you're seeing so far in that process and any key learnings and how would you define success for that game and it is there anything you would point to for investors to sort of get a sense.

A potential sizing and then if you could just give an update on the broader pipeline and you know the the peaks of game development outside this one's got thanks.

Hey, Thanks for the question so.

As we mentioned before we are really excited about launching sweet scrapped.

Q4 is a huge milestone for the company.

Testing is switched graphs.

In the last 3 quarters, we did huge there's a few different region, we change things in the game and only after we are feeling confident about the successful but again, we can launch the game. So it's not.

Something that's happened in a few weeks or few months, it's a long process, we need to be confident to know so we want to win we don't want to fill in this is was always politico ways. So.

Regarding success down to it's really really simple philosophy success is hundreds of millions of dollars up to 3 years. This is a successful for game. We believe we can do better than this this is a way to me Joe I'll walk you and they are the most important thing yes, we're launching it gave me twofold, but we're going to launch another game in the 'twenty to 'twenty.

Tito and there's always likes to getting back with double and double it and new games in the coming to a 60 months and we are really excited about it and feeling very confident about our success here. Thank you for the question.

Okay.

Your next question comes from the line of Stephen Ju with Credit Suisse.

Okay. Thank you so I'm just a follow up on switched crap. So.

When you were talking about a global large I mean should we be thinking about the Chinese market as being part of that large and if so do.

Do you already have a publishing partner lined up and are going through the approval process I guess and it does sound like a sort of media might be down year over year against what were you know pretty tough comps there, but it does seem like the the dollars of revenue there that you're generating is still holding out level.

Those are ahead of where you otherwise would have been at the pandemic had not happened. So can you talk about what youre seeing in that game in terms of <unk>.

Engagement or monetization have we just reached a new level that we're holding what that game. Okay. Thanks.

Yeah.

Well thanks for the 2 questions actually 1 so the so the first 1 the pursuit.

Are we going to known switched swept in the areas that we're already walking right now I'm not going to do it in China, because in China, right now and that we are focusing in the market that we understand well focusing on the market that we control and when we know that we're going to have the success and the we're not going to do it.

And the other experiencing these well again going to be launched in Europe, India and the.

In the U S and this is the old man market in a way.

Are they excited about it and it doesn't feel Dominion Oh, you know the interesting stuff here. It you'll guys everyone. The market can see only the platforms, but we have our own propriety platform that nobody can see the result, what I can tell you its not the money stab at very stable and at some point even growing so.

We are very excited about the future of demand here and we're going to grow because again as I always said at the beginning and I said, even be falling in the roadshow, we looked at that would get them to the platform. This is not again that he said okay in 2 or 3 years, we're going to make another game still to mine are here to stay it's a brand that's running more than that.

In years, and he's going to run more than they have in years and we have many big potential slow demand yet until all other games. So we are not down in any way were only growing thank you.

Steven just to put the numbers in context for you slot of ammonia in the first quarter was up 5% over the fourth quarter and in the second quarter was down just 1% sequentially and so again strong continued performance I'm slaughterman wherever as Robert mentioned, we're very excited about the roadmap there.

Okay. Thank you.

Yeah.

Your next question comes from the line of drew Crum with Stifel.

Thanks, Hey, guys.

20% of revenue source or little more than 20% sourced from your proprietary platform. During the period what are your expectations for 'twenty..1 in the second half specifically are you assuming that that level holds or does it increase and what does that portend to gross margin in the second half and then just a quick housekeeping.

Item what are you embedding in the revenue guidance for 'twenty, 1 can switch crafts.

So regarding the they go they go with proprietary platform.

It's all really dramatically in the last 12 months.

We said in the road show that we're going to get to 30% are already more than 20% I see stability there until the end of this year, maybe it will go another 1.2%.

Yeah, we're not going to add any more games do seal the new games.

Going to add novel platform is going to be doing next year in the year after.

Randy on the right run rate and we're feeling really comfortable and the especially in these days, it's very important to be independent and it's very important to hold you to hold your own future and we have like almost quarter will fall away, but you'll see us running on our own platform. So regarding the second question.

But I want to take the second 1 sure on switch crafts, given it's a Q4 launch topline is not going to be material to the projections in terms of the investment in marketing and that's baked into our guidance of $1 billion target and so we do we have that covered as part of that so nothing is changing there.

Guidance and we're excited about the Q4 launch.

Okay. Thanks, guys.

Yeah.

Your next question comes from the line of Doug Coos with Cowen.

Hey, Thanks could you talk a little bit about what you have seen a impact of idea, saying I know you don't have a big AD business, but anything you'd comment there and then.

More importantly have you seen any impact on the user acquisition side. Thanks.

Perfect. Thanks for the question.

You know, we feel confident about our positioning regarding idea for a for a couple of reasons I mean, as you mentioned our AD revenues only 3% of our business and so our top lines minimally impacted by this.

The data we've seen on the media buying side has been encouraging.

Effective CPI has been stable and pre and post idea pay periods in our current consent rate and adoption rates are higher than we expected at 34% and 78% respectively.

In other words, 78% of the impact has been absorbed and we haven't seen an increase in our effective C. B is just to be clear effective C. P is include organic and an unattributed traffic acquired third this is the type of event, where I play too because that's when it's really stands out we've become very effective in our offline and nonperformance marketing campaigns and we buy traffic from a law.

A number of networks. So we're more diversified in that respect as well. In addition, with our live ops, we're very successful monetization, which means we have more tools to drive growth and we convert users faster. So our feedback loop as stronger since we get data faster. We also use sophisticated AI and our proprietary samurai tool that allows us to optimize our media buying and budget.

Allocation based on ROI.

On the upside we actually think that will create more M&A opportunities given the level of operational sophistication needed to succeed in this environment has just increased dramatically and many small companies are not able to meet that bar.

Yeah.

Thanks, that's very helpful.

Thanks.

Your next question comes from the line of Eric Handler with M. K M partners.

Good morning, and thanks for the question.

As we think stack your revenue by geography.

The EMEA market, what looked to be up about 9% year over year and I'm, assuming a lot of that had to do with the advertising campaigns that you ran for bingo Blitz I Wonder how does this maybe change your thinking about doing more of these targeted G O.

Advertising campaigns for not just single bids for other games and the opportunities you're seeing overseas.

Sure thing. Thanks for the question so localization for US is an area. We're really excited about I think Salto grant harvest in the campaign. We recently did in Germany is a proof point for not only other markets for assaults are grant harvest.

But all of our games I mean truly taking localization beyond language into live ops into customer support into the events that we run and then partnering on the marketing side, both offline and online with Influencers and other sort of local celebrities has really allowed us to penetrate these markets successfully so.

So I think Europe represents the biggest part of upside in the near term I think longer term Asia is probably where we're going to focus in terms of upside, but I'm definitely excited about the results and have more in the works to update on in the future there as well.

Thank you.

Your next question comes from the line of Jason Bazinet with Citi.

I just had 2 quick questions you mentioned that it could progress you've made getting into casual up to 48% of your mix from 42 is there is there a soft goal in terms of where you want that mix to go as part of casual and then my second question you said Cpi's were stable some of the other.

Some of your maybe not direct competitors, but others in the industry have talked about C. P is moving up pretty demonstrably is that is your stable number just a function of a mix shift between organic and an unattributed traffic. Thanks.

Sure. So I'll take the second part first so we said the effective C. B eyes are stable. So effective CPI takes into account organic traffic and unattributed traffic I think if you're looking at just attributed traffic. Yes. The CPI is are going up but for us looking at the full picture right. Because now you have a traffic that's on a true.

We're seeing our effective cpas are stable and so I think you know our technology or AI models and all of the things that we're doing are really enabling us, especially with the offline campaigns to continue to perform at levels that we have in the past.

Thank you.

In terms of.

To go back to your first part of your question in terms of casual target Theres no target per se, what I would say is that all of our new product developments are focused on the casual market.

All of our M&A discussions and efforts are focused around casual and other adjacent markets as well and we're excited about some of the opportunities that we're looking at there as well. So I don't think there's a target per se I think what you do see is that the casual business continues to grow at double digit rates I don't always see the casino portfolio, probably is a single digit grower.

And so you know, we'll continue to see that that mix shift over time, but.

But no specific target to date him.

But stay tuned on that analyst meeting in December we will provide more detail.

Super helpful. Thank you.

Yeah.

There appears to be no more questions at this time I'll turn it back over to Robert for closing remarks.

Thank you.

Thank you everyone for.

The call summarize what we said in the last 30 minutes, we had an amazing quarter would be the numbers of the COVID-19 quarter from 2020 with launching a new game on 2 full we are growing our business priority classroom is growing more than 20%.

And we see the idea phase the big opportunity for play to come now show the Skus of the operations there.

The moon positioned towards.

Oh, I see a really really good future for us.

And do you see in the Europe. So they can do so much for joining us I hope to see you again soon.

Yeah.

Yeah.

Okay.