Q3 2021 Playtika Holding Corp Earnings Call
[music].
Good morning, ladies and gentlemen, thank you for standing by.
And welcome to the third quarter 2021 earnings call, we will take our Holdings Corp.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press. The Star then one key on you touched on the telephone.
Please be advised that today's conference maybe recorded.
We will go to offer assistance. Please press Star then zero.
I would now like to hand, the conference over to your speaker host today, Mr. David determine vice President of Investor Relations.
Welcome to everyone and thank you for joining us today for the third quarter of 2021 earnings call for <unk> holding Corp. Joining me on the call today are Robert Hass, <unk> co founder and CEO of <unk>.
Craig Abrahams, Thank you guys, President and Chief Financial Officer.
I'd like to remind you that today's discussion may contain forward looking statements, including but not limited to the company's anticipated future revenue and operating performance. These statements and other comments are not a guarantee of future performance, but rather are subject to risks and uncertainties some of which are beyond our control. These forward looking statements apply as of today and you should not rely on them as representing our views.
In the future we undertake no obligation to update these statements after this call.
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, and we will also post our prepared remarks immediately following the call.
I will now turn the call over to Robert.
Okay.
Thank you David and thank you everyone joining us today.
We have recently had many exciting developments and made good progress in terms of setting the stage for growth in 2022, we are building momentum across all our aerial business include the game operation Technology, and importantly, new game development and M&A.
I will discuss all of these in more detail and then Greg will review. Our Q3 results were recently acquired with incredible New studio launched new game in October and soft launching another new game last week and also continues to drive innovation and product.
Across our existing portfolio. We believe all of these achievements will give us a strong foundation for future growth.
Let's start with Revokes Endo heat at renewal, we will delighted to welcome the team to the <unk> family in August.
The goal is exciting mobile app, where users create their own internal designs, which are then bolted and rated by other members of the apps community, making it highly creative engaging and social experience.
These are the percent led to gas first move into areas beyond traditional games and we are optimistic that the beginning of the powerful long term growth driver.
We believe that the world of games and apps recently co browsing, the product and mechanics and operations Skus acquire to success in both cancer growth have been full overlap this is evident.
Jeff vehicle, but also a number of other prominent non gaming projects across e-commerce lifestyle educational pig and more political is an exciting first step further expand into direction and to gain access to large new market.
The two months since closing the deal.
Really focused on setting the groundwork needed for future scale and complement the vehicle team.
Credible talent, we stopped expert from some straight because most successful studios bridging experience.
And that analytics technology and monetization.
Early results from critical has been very encouraging we are thrilled about the potential for critical and <unk>.
Very happy to future expense.
Exciting footprint, the mobile half of Helsinki.
As we continue to look to areas beyond games, we believe our unmatched expertise data analytics gamification.
<unk> technology and litigation, which have been boost platform will give us at least.
<unk> advantage.
Let's turn to switch drugs, the new game from our studio that will launch globally last months.
We are very encouraged from the early feedback from the first few weeks since our global launch we had originally planned which dropped global launch for 'twenty to 'twenty, two but again performing beyond expectation in early testing, which enabled us to accelerate the launch timeline switch dropped off.
So it's a unique combination of classic commenced III gameplay with compelling story of Missouri in Magic.
After with top of the line production value that <unk> provides endless our fun and exciting to the cloud.
We also love the characters in the game a highly diverse and we believe this is important progress for the mobile game industry. We are really proud of our Woburn studio for creating such an amazing game and hope everyone on the call to take some time to play.
In terms of our new game stuff is cheap.
We have deep bench of game developers talent play pickup that we have built up as we acquired studios.
This has provided us with a solid pipeline of new games, which will serve as another growth vehicle.
Today I am pleased to announce that our game Maersk salary went into soft launch last week. This game was built by our jelly button studio creative of both key.
So it has been in development for two years and offers a unique innovation take of the months category.
We received excellent internal feedback from players and the platforms.
So as the hybrid game. This combines the coal mountain game mechanics, with casual boots slash bottom elements.
The metrics, we are seeing so far are very positive putting us on track for a global launch in Q2 of next year. Additionally, we will soft launch another game next year as well as both games performed well during soft launch where many globally launched two new.
Games next year.
This would put US well ahead of the new game launch timing, we discuss at our IPO in January we will provide more details at our analyst day now in about 2022.
In conclusion, we are very.
Proud of our progress and close these different areas and the confidence that we are setting up <unk> for long term growth and success.
Our focus in the long term health of our business and the steps we are taking this year.
For 14.
Our long term <unk>.
Additionally, as we look at the landscape of opportunities and new business models emerging.
We are really excited about what we see both in <unk> and beyond.
Especially in the businesses adjustment in mobile games, we're excited to share more details about the work we are doing in this area in the coming quarters.
With that I will turn the call over to Craig to review the third quarter results.
Thanks, Robert and thank you to everyone joining our call today.
In Q3, we grew revenue, 4% year over year to $635 9 million, beating a difficult comparison due to the Covid lockdowns in Q3 2020.
It will be the last quarter of this phenomenon and we anticipate year over year comparisons will be more typical going forward.
Let's take a closer look at our results for the third quarter last quarter, we reiterated our full year 2021 revenue guidance of $2 6 billion.
This implied a relatively flat second half, which is what we anticipated at that time, our actual Q3 results were down three 6% sequentially.
While there are many areas of success within the quarter, a few of which Robert highlighted there were also a few areas that impacted our results.
First we had lower than expected revenues for both board Kings and World series of Poker.
Starting with Board Kings, we've made recent management changes, which we believe will set the business back to growth. We're also encouraged that the upcoming World series of Poker main event in collaboration with the World series of Poker land base tournaments and upcoming product roadmap will spur growth in our <unk> game.
In addition product and platform investments that will help our growth in the future resulted in comparatively fewer new product features for slot ammonia and bingo Blitz.
Let me spend some time reviewing our casual and casino themed portfolios are casual portfolio continues to perform growing 12% year over year and now accounting for approximately 49% of revenue as we continue to diversify and earn more revenue from our casual games.
Does include approximately one month of contribution from <unk>.
<unk> harvest was our fastest growing gain increasing 45% year over year for Solitaire, we launched an ambitious project in Q3 rebuilding the game on the unity platform.
By shifting the unity, we will enable the game to scale more efficiently and positioned for continued growth. The project will extend through Q2 next year and is going well.
Bingo Blitz had a solid quarter growing 15% year over year. Another strategic initiative in the quarter included a total revamping of the bingo engine. The first step in preparing <unk> for the next decade. Looking ahead, we're working on a complete brand facelift, including refreshing the lobby Matt logo payment page.
And many other aspects of the game. Additionally, we're planning features that will enhance the social experience, even further and provide our players with even more reasons to play.
Finally, we saw good results from June's journey.
With this game seeing success with the launch of the collectible album in September utilizing our boost platform.
This is a great example of how we can apply our technology and capabilities across our portfolio and highlights our potential to replicate this going forward.
Turning to our casino themed portfolio revenues were down 4% year over year, we were highly focused on developing several campaigns both for product and marketing. We are optimistic these campaigns will drive performance starting in Q1 2022.
Starting with slot ammonia. The team is working on many exciting projects that will extend through Q4 and beyond we are very excited to announce that we have developed new localization capabilities for slot of ammonia that will allow us to operate the game not just in different languages, but also from our live ops perspective that.
That includes local holidays and regional focus marketing. This was an ambitious project that will allow us to bring this capability to other games in our portfolio via the boost platform.
This gives us the ability to tap to new growth factors further expanding into markets outside the U S and also targeting people within the U S and current players for whom English is not their primary language.
Additionally, we also rewrote the client from the ground up moving slot ammonia from see sharp to Java script. This.
This was the culmination of an 18 month project that will allow us to develop features more quickly and efficiently and also gives us access to a wider pool of R&D talent.
For Caesars slots, we've substantially revise the game experience with an overall rebranding and look and feel of the game.
Our new theme is the Caesars way, which comes with a new set of features designed to give our players more control within the game, making them feel like a true Caesar player feedback has been overwhelmingly positive. Additionally, we launched a marketing campaign with Ty Pennington from extreme makeover and this drove excellent performance with installs of the game up 94.
[noise] percent year over year in Q3.
These are just a few of many technological advancements new features in marketing campaigns. We worked on in the third quarter. These updates and enhancements to our games showcases our strategy to keep our games fresh and appealing to our loyal customers that aren't playing our games for many years and.
And attracting new players that lover genre, but have not yet played our games. We are proud of the work we've done and believe these investments will position <unk> for long term growth.
Let me switch topics now to marketing and user acquisition. Our effective CPI is were stable in the third quarter and game installations were strong overall. This further highlights our ability to navigate a changing landscape we were able to manage the decline in iOS installs by moving resources from social networks to other <unk>.
<unk> advertising networks and also investing in offline activity, which is increased organic installs. We also shifted budgets towards Android as we mentioned, we believe <unk> is well positioned to weather changes in the user acquisition environment due to our overall diversification of UA sources abilities in data analytics and artificial intelligence.
It allows us to evaluate the performance of marketing investments very quickly and direct dollars to areas that yield the best results.
Turning to our P&L cost of goods as a percentage of revenue declined year over year from 29, 4% to 28, 2%.
This shift was primarily driven by the percentage of revenue flowing through our proprietary platforms to 21, 7% up from 14, 5% in the third quarter of 2020, our proprietary platforms continue to be a strong source of margin and provides acre this strength reduced the impact to our adjusted EBITDA from lower than expected revenues in the quarter.
Regarding operating expenses, our R&D sales and marketing and G&A were all essentially in line with our expectations as we continue to add team members to support our future growth plans.
GAAP net income was $80 5 million compared to $119 9 million in the prior year quarter adjust.
Adjusted EBITDA was $247 8 million representing.
Representing a margin of 38, 9%. This compares to $261 $4 million and a 42, 6% margin in the third quarter of 2020.
As of September 30, we had approximately $1 billion in cash and cash equivalents. Following our acquisition of reworks. We now have over $1 5 billion in available liquidity to pursue M&A and fund growth opportunities.
Turning to guidance with our continued investment in future growth. This year, we are revising our full year financial guidance to revenue of $2 $5 7 billion.
And adjusted EBITDA of $980 million.
We expect Q4 to be a consistent topline levels as Q3, but as we look at Q1 'twenty two.
<unk> roadmap for our entire portfolio is stacked with a compelling set of new features and we believe these investments will drive growth into the next year. We are highly focused on our long term potential and are making the appropriate investments to position. The company for continued organic growth in 2022 and beyond.
As Robert referenced and also in our press release earlier today I also want to make sure that everyone knows that we're moving our analyst day to early March in New York City.
We have several exciting projects underway and combined with what we hope is an improving situation with Covid. We believe it's best to wait a few more months to meet as many people as possible in person and share our long term vision and plans then.
In summary, we had a quarter with several bright spots exciting investments in new initiatives and also a few challenges when.
When we survey our business from a high level perspective, we are confident that the roadmaps, we have planned for our games and the exciting growth drivers that we've spoken to here and on prior calls will allow us to achieve strong growth over the long term.
With additional product investments planned through the rest of 2021, we're confident that we'll finish the year with over 8% growth over 2020 and set us up for strong topline growth in 2022.
The key Differentiators that set us apart and that we believe will give us the ability to outperform are all in place and in fact stronger than ever.
Our technology creativity and desire to win are core parts of <unk> DNA that we've built over a decade working together, we remain focused on the long term opportunity to leverage our strengths and expand our leadership in new categories and business verticals in the process.
With that we'd be happy to take your questions.
Thank you, ladies and gentlemen to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
And our first question coming from the line of Brian Nowak with Morgan Stanley. Your line is open.
Hi, Good morning, guys, it's Matt on for Brian. Thanks for taking the questions I have two if I could so just in terms of in terms of the guidance update maybe you can just dig into like a little bit more detail on specifically kind of where the source of kind of that change came from it seems like maybe there's been a slight.
Downtick in casino, specifically versus your expectations and sort of how you how you see that playing out as you move through the end of the year and into next year and then just secondly, there was a comment in the press release about like infrastructure and product investments in <unk>.
Is the level of Opex investment that you expect to make in infrastructure and product through the end of the year is that reflected in <unk> should it be sustained should it kind of step down as we get into getting into <unk> any.
Any detail there would be very helpful. Thank you.
Hey, good morning, Thanks for the question.
<unk>.
I will answer and then I'll try to answer.
Two questions in one shot.
And of course I'm looking at the.
Covenant.
Quarter in <unk>.
<unk> operation, but I think we as a company and we said this at the beginning of the year.
Focusing for a long time of what was an important investment that will help us to grow the digital future to a better place. So yes, we have.
Some issues this quarter and Greg.
Got it.
I think when you look at this quarter, we paid in May.
So the first one is of course, we acquire the original goal and we did an amazing job.
So fast in the augmented operating embedded when we launch.
Before that six months before we even Poland, we're going to launch it and we spoke about it of course and NATO bid.
Slide show and the head of our games and will help us to grow in 2022 and the last important stuff.
This is.
But even for what we're going to launch another game with Matt sorry, the beginning of next year.
It is a big thing for us as a company that said at the beginning of the year launched.
Just one game in 2020.
And I will be focusing.
Launched two and maybe three games.
Phew.
Sure Matt Thanks for the question so in terms of third quarter, specifically <unk>.
Two titles, we had anticipated to have growth both in <unk> and World series of poker and we saw declines.
I think the changes that we're going to make in both titles.
Give us confidence that we can get those titles back the growth in world series of poker.
There was a key feature that was pushed back to the fourth quarter as well.
In terms of the broader portfolio, we guided the back half of the year to be flat because we saw comparatively fewer.
New promotions and features as a result of some of the infrastructure enhancements, we're making.
And so the margin for error on the features we did launch was much smaller and when some of those features didn't resonate as well as we had hoped that.
That impacted the quarter. So again, we think it's more roadmap related across a specific set of titles.
And that does impact our fourth quarter and that we saw some of those infrastructure.
<unk>.
Permeate through the fourth quarter as well and so that's why the guidance for the fourth quarter is consistent with the third but as we look into 'twenty two and we look at the first quarter of next year, we're very confident in terms of driving back to growth again.
In terms of your question on cost.
I think if you look at the third quarter.
Do you see cost increases year over year, primarily in R&D as we.
We increased both employees as well as some cost increases there, but that's already reflected in the Q3 numbers as we roll forward to Q4.
Implied in our guidance Youll see that Theres, a lower EBITDA as well.
Some of that is.
Oh in terms of the fourth quarter with marketing spend and some of that is also just continued increases as we as we increase.
For us, but $980 million.
Is there a new target for 2021 in terms of adjusted EBITDA.
Great. Thank you.
And our next question coming from the line of Stephen Ju with Credit Suisse. Your line is open.
Okay. Thank you, so Robert or Craig can.
Can you update us on the current M&A environment I think there was the potential for asset prices to maybe start coming in a little bit of some of the.
More subscale studios wanted into difficulties wrapping their business on the other side of it.
Idea freight deprecation.
Is this indeed happening from what you can tell and issue or potential backlog of deals hopefully an elongated.
The aftermath.
Sure. Thanks, David Good question. So just on the M&A environment continues to be competitive I think the private markets are not fully aligned with the public markets in terms of where we continue to see valuations.
I wouldn't say that the private market valuations have been impacted by the FAA I.
I think some of the businesses have been impacted and so we'll have to see.
When valuations come in line as we've always said, we're focused on equity value creation, and we're going to do deals.
Drives equity value for our shareholders and so we have a very broad pipeline of opportunities given our technology and technical capabilities and in terms of our ability to acquire assets in a variety of different categories. I think we're really excited about what we're seeing in some of the adjacent categories within gaming I think in terms of beyond <unk>.
And there's also other exciting opportunities.
So we have nothing to share at this time, but there is a lot happening within our ecosystem.
And we're excited about having liquidity to go after these opportunities I think some of the traditional game opportunities.
The multiples don't come in line to where we think these businesses need to be valued then youre not going to see us do a transaction it doesn't make economic sense.
Thank you.
Yes.
Our next question coming from the line of drew Crum with Stifel. Your line is open.
Okay. Thanks, guys good morning.
Trusts, you've had some time to digest the ruling in the epic games Apple case could you comment on <unk>.
How you see the anti steering mandate impacting your business and then separately Craig maybe you can talk about the divergence in dow's, which were down in the quarter versus models, which were up thanks.
So.
And this is a very interesting question because we are waiting to see what is going to happen we don't know.
As many of speculation about that but.
Anyway, because of the way I don't.
No company that we have our own proprietary platform and wherever the full ever for now that can happen.
Paul Hudson, we're ready.
As we said in the call that we have 22% of our revenues valuable now open for voting platform.
We're ready to do.
To grow this platform, we are ready for any of those decisions.
We need to wait.
Yes.
Sure.
<unk>.
This quarter, we are growing.
Good.
We are not doing many many different campaigns.
We're doing many experiences because we launched a new K. So there is a big environment going again.
It was about flat.
Quarter nothing happened here.
Not a big issue and the last thing is that.
The thing is because this is not the main focus of the company will not look at this number. This is the number we saw in the first quarter, we were down in the video in a limited market release, so it doesn't affect any.
<unk> of our revenues.
A number that we're looking at and trying to understand how to bring the quality not only the big number.
Okay. Thanks Robert.
Yeah.
Okay.
And our next question coming from the line of Betsy <unk> with UBS. Your line is open.
Great. Thank you can you can you provide an update if there was any change for the contribution from the reworks.
A quick question in terms of maybe revenue and EBITDA.
Can you talk about some of the engagement trends that youre seeing if there is any change.
Yes.
And Debbie kind of like lifting up and.
You mentioned that.
There's going to be some.
Range in terms of Board Kingdom, we'll go back to growth eventually what will drive that thank you.
Sure. So in terms of the reworks guidance nothing has changed in terms of what we provided.
In the press release $30 million for the year, one month of that being in the first quarter on the remainder of that being in the fourth quarter. We did not provide any guidance as it relates to any EBITDA contribution from that acquisition.
Given its minimal.
In terms of.
So it was the second part of the question engagement.
Engagement trends.
In terms of in terms of player engagement I think what we saw in the quarter was that in games, where we had.
Investment in infrastructure and technological changes are we had fewer comparative.
Features and releases.
You would've seen engagement levels down in terms of.
Okay.
So she's ready to hear about it.
Kind of thank you.
[laughter].
Our next question coming from the learner, Eric handler with M Cam partners, killing Us open.
Yes, Thank you very much for the call and good morning.
You you've seen them acceleration and your new game launch roadmap.
I'm wondering if you could comment about what has changed since the time of your IPO. That's allowed you to to be in the situation.
Thank you for the question so.
What are you studying and will become a public company.
We do have the confidence we have two variables launching new game and we said we're going to launch one game.
The last few months, we implement the both the platform to our new games.
Development, and we see a huge progress by feature side, but technology side, a lot of AI activities. So.
So it gave us give us as a company would be confidence about launching the new title and their polce accent. So this is the main thing that changing.
I think this is this.
This is going to focus a bit because actually this is the new thing to change in the company through this year, because we never launched engaged in the past and D C as well.
Aiming to launch a political totally three game. So this is a big big thing for Politica, We're really excited about it we see amazing performance.
Switch craft.
Launched a few weeks ago, we feel that this is happening in the field the company as I said in the beginning I am looking the quarter, what I'm focusing in the future and this is this is this is important stuff that we we want to take the call and this is our main message where we are.
Images oil company, and we will be filled with every year and this year, they're managing and demanding that make me excitement is launching this new title. This is the next challenge of place eager and the thing now it looks very promising.
Thank you very much.
Our next question coming from the lineup Clark randomly P. T I T on this topic.
Thanks, Tiffany please Robert I wanted to see whether you might be willing to expand on some of the comments. He made at the start of the call. Those are some big vertical highlighted between e-commerce lifestyle and Ed Tech. It sounds like maybe you think there's a services model extension of Booze I'm curious if you'd elaborate on whether I'm breathing that right or maybe the goal something completely.
Different.
Separately, Craig I wanted to see if he could help us think about what exactly is stacked product roadmap might translate to in terms of growth I apologize if I missed some quantification year, but.
If not I am generally curious whether you think you can get back to prior levels of organic growth and a low double digit plus range.
Okay.
When we went about it we spoke about going beyond games and our focus with this and that was with a growth.
The final thing and the interesting thing, we just said Paul.
With our players as a vehicle.
<unk> is it up.
Not as again as we said.
Like half game, so we have a.
Very fast that most of the options or world, we could make them look and feel metricate because I'm a songs are very very similar and at the end of the.
We have the same the final of the players we have our toys to monetize to make LIBOR.
LIBOR pressure exactly.
So I can note that executive right now what is the direction that we're going to go next few and beyond games, but I can tell you the confidence of buying vehicle.
Helping us to understand that now we can go beyond this category.
Category because again there is things did they are similar for Everthing segmentation Accordingly, lobdell scared it similar it doesn't matter if it's a gamble present, an app and again, we need to show to the market that we are performing very well, we do the glow because while it only two months ago.
We can develop a store, but still we need to show the number but after we saw the success. It will give it will make a play a different company and it's a very big change of Florida.
<unk> sorry.
In terms of the first quarter, we didn't give specific guidance what I would say is that the first quarter of 2021 at a very strong roadmap.
We see a very strong roadmap lined up in the first quarter of 22 as well. So I think that that would be a way to put it in context I think in terms of specific guidance for 22 and beyond an analyst day in early March where we providing that guidance.
Thanks, a lot.
Our next question coming from the line of passion with your line or something.
Okay, great. Thanks.
If you can give an update on how you were thinking of that industry consolidation in terms of several mobile publishers, combining with third party mobile advertising platforms, and perhaps if you're seeing any impact from idea essay and whether your thoughts about integrating more mobile AD tech capabilities have changed versus what we were.
Talking about around the IPO. Thanks.
Sure. Thanks, So in terms of what's happening ended industry.
Yeah. There is there has been a lot of them an activity. We are focused on acquiring great content to create long lasting franchises and I believe they will continue to be part of the strategy. I think there's also emerging business models around games that are very interesting that were deeply evaluating as well so.
A lot happening, they're not going to comment specifically on add Jack I think in terms of IFA as referenced in the prepared remarks, there hasn't been.
An impact to the ECB are effective CPI as as a result of a lot of the things that we've done to make changes in the quarter and I'm very proud of the team for how they've navigated changing landscape in terms of switching sources shifting some budget Android leveraging our AI technology to be more efficient and get payback periods more quickly.
And overall drive stronger numbers are installs and so the teams navigated very well.
We continue to do a great job in light of those changes.
Our next question.
Question coming from the lineup that credit Suisse, calling your line or something.
Hey, Thanks can you talk a little about your you a roadmap for switched crafts.
How how you're spending your required users now.
It looks like download philosophy has been been pretty modest since you launched it I'm just wondering if there was a point in which you plan to kind of particular megass to trying to drive more used the title. Thanks.
Yeah for the question so yes.
Switched coasts was our first launch of a new game.
The.
The intention is to see the numbers and the kps before we start starting to scale.
Activities here.
We launched in two weeks ago, we see fairly good results regarding monetization and lives.
And I think we will wait.
Two or three months and will bear with us will scare the business because actually now.
This is not the right time to acquire the use of.
For November December, but in the beginning of deal with going to see the huge push of users to switch draft and is going to take a huge cup too big big different scales. This is our intention of course, we need to see that nothing had changed but if it will stay like this is the beginning of the year, we're going to see a huge push.
A few zone as witchcraft and this is going to take the game to another place.
Perfect. Thank you.
[laughter].
Our next question coming from right now that's shopping with capital isn't that something.
That please check them yet.
Okay, and I'm showing no further questions at this time I will now turn the call back over to Mr. Robert cough any kind of thinking.
Max.
Hello. Thank you guys for the Q&A. Thank you to have to be on the call.
We said.
Main thing.
It's happened the last quarter and Dementing for the for the future.
Again, we are really excited about the changes that we did in our games were really excited about launching a new game. We're excited about acquiring vehicle and the as we said in the beginning of the call, we're focusing our future and we see a very good future for politica and they're not speaking.
Five years four nine speaking about one or two quarters for now. So this is this is where we avoid and we're going to study may feel very strongly and the fuel fuel for the next call. Thank you so much.
Ladies and gentlemen that hasn't got conference for today. Thank you for your participation you may now disconnect.
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