Q1 2022 Sciplay Corp Earnings Call
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Yeah.
Hello, and welcome to Si play first quarter 2022 conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the plumbing presentation go ahead.
Ask the question during the session you will need to press Star then one on your telephone.
Now, let me turn the call over to Jim Snee.
Please go ahead Sir.
Thank you operator, and good afternoon, everyone.
During today's call, we will discuss our first quarter 2022 results and operating performance followed by a question and answer period.
With me today are CEO , Josh Wilson, and interim CFO Daniel Quinn.
Our call today will contain certain statements that include forward looking statements under the private Securities Litigation Reform Act with 1995.
These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call.
For more information regarding these risks and uncertainties. Please refer to our earnings release issued today 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 release and the investors section on our website.
In addition, please note that keep you guys discussed on today's call referred to a in app purchases only unless otherwise noted.
As a reminder, this conference call is being recorded.
A replay of the webcast and accompanying materials will be archived in the investors section at our website at Si play Dot com.
And now I'll turn the call over to Josh.
Okay.
Thanks, Dan Good morning, everyone and thanks for joining today.
We're going to keep today's call relatively short, giving our upcoming investors day.
Mike I'll take place Tuesday may 17th in New York, which will also be available via webcast that said, we have a lot to be excited about after another incredible strong quarter of above market crowd.
Let me run through a few highlights.
We are very pleased with our team's performance as we are building upon last year's momentum and continue our record strong core operation.
The first quarter of 2022, but the second highest revenue quarter exceeded only by the second quarter of 2020, a quarter that of course, we saw a dramatic boost in revenue because of what happened with callbacks.
How have we done it first and foremost with a great core games that continue to perform better and better goldfish had six consecutive quarterly record quick hit also had new revenue record with double digit sequential and year over year ground Jackpot Party delivered one of the <unk>.
Quarterly revenue record continuing to grow year over year.
Monopoly had a very strong quarter as well with revenues and opt out increasing double digits, reflecting the fact that players are spending more and more time in the game.
Another key dynamic is the increased investment in marketing. We told you about last quarter is paying off with plan outperforming its expected payback by 3%. This quarter, we are seeing more new players and record monthly paying users demonstrating that we are succeeding.
<unk> and expanding our reach.
As we start monetizing these new users we will see a ramp in the average monthly revenue per paying user over time. This will provide another leg of growth on top of the strong monetization generated in the current quarter.
Another big development this quarter was our acquisition of elected.
I'll talk more about electus in a moment, but it is strong and the strong performance both financially and operationally had been a real highlight for us.
In addition, we have recently added new members to our board of directors, increasing the size to nine.
It was very important to us to bring in leadership.
That had deep industry knowledge and strategic expertise to enrich the bard and provide the right next step perspective, as we embark on the next phase of our crowd.
Last but not least our board has authorized a $60 million two year share repurchase program.
We are in strong position to invest in growth as well as return capital to our shareholders.
This demonstrates our commitment to driving shareholder value and generating the highest return for our investors by deploying capital wherever we see the best opportunity, whether that's investing in our growth initiatives executing our disciplined acquisition or returning capital to our shareholders via share buybacks.
So to take a step back we outpaced the social casino market in the first quarter in line with our expectation, but for US the top line coming out of this quarter isn't just crap its momentum the momentum we continue to generate quarter over quarter as we execute on our sweetest.
Strategies to expand our market share.
And that's what makes us so excited not just about the results we saw in the first quarter, but also the results we anticipate going forward.
Indeed, our success reflects the successful execution of the plan that has been in place for some time I mentioned for example, our success of our increased investment in marketing, which was made possible by our record Ltvs, we began to see.
And we are just getting started we are continuing to invest in our Si play engine with the goal of continuing to increase reach improve retention and provide enhanced value to the players and ultimately deepen our player engagement and monetization and we saw great results this quarter.
Monthly paying users and monthly active users improved sequentially, while our payer conversion rate remained at record level.
Also opt out was strong at 74 cents up from 67 cents in the first quarter of 2021.
As we continue to product size, our core capabilities centralizing project I'll start to benefit across all portfolio of games.
We're creating the next catalyst to enable to accelerate revenue growth and drive sustainable profitability.
Concurrently we continue to invest in our direct to player platform.
Well further enhance revenue growth customer LTV and market.
All of the investments are already beginning to deliver return and we couldn't be happier about what all of these initial returns look like.
That's why we are confident in achieving our 2022 revenue growth target of 10%, we provided last cargo and well remain on pace to achieve 29% full year 2022, a EBITDA margin.
Before I turn it over to Daniel for more detail on our financial performance. Let me just briefly speak to the early success of Oh. They have liked this acquisition integration is proceeding extremely well and both teams are delivering solid results. We are on target and have great news to share.
Yeah.
Electus executed successfully on our product roadmap and the first quarter, releasing two new games, one of which achieved number one free games on the U S. Google play and number five free games on the I O S U S App store.
And acquiring the company, we added 28 million monthly active users more importantly, we added the opportunity to achieve increased synergies.
I'll give you. One example, electricity in App advertising technology allows us to diversify our revenue by giving us flexibility to design games that get bulk monetize through in App advertising in app purchasing or a hybrid revenue model and we are already seeing a perfect.
Kennedy to take advantage of this new capability, what solitaire pet adventure.
On top of that we're going to be able to cross sell between social casino and casual helping us maximize the LTV across the entire portfolio.
I had a chance to visit with a whole lot like this team in Turkey, and I came back even more excited about the acquisition.
We have a lot to look forward to as we scale this high growth profitable business even further.
You'll hear more about the strategy and business next Tuesday may 17 at our Investor day, including sneak preview of project acts such as on track for launch in the second half of 'twenty 'twenty. Two Trust me you won't want to Miss that.
And now let me turn it over to Daniel.
Thanks, Josh I too will try to keep things short I will just run through some financial highlights quickly and then we'll open up the call to take your questions.
Let me start by reiterating what Josh said.
This was an extremely strong quarter building off the strong momentum from fourth quarter to achieve our second highest revenues ever.
Total revenues increased 5% year over year to $158 million.
And excluding Electus.
Revenue growth was about 3% year over year.
Coming off those excellent results, we are on target to achieve our target of 10% full year revenue growth and 29% full year 2022 EBITDA margin.
And I'll note again.
This outlook reflects our expectation that margins will scale over the course of the year and next year as the investments Josh talked about drive revenues.
Net income for the quarter was $32 million and our net income margin was 20%.
Both were impacted by our investments in growth initiatives.
You can see the scale of those investments in the numbers, but also the initial impact of the returns.
We generated EBITDA of $44 million, including investments we made during the quarter.
Our first quarter EBITDA margin of 28% is consistent with our expectations and we continue to expect margins will scale in the second half of the year.
However.
As we've said today the initial returns on those investments or reason for excitement.
As Josh mentioned, our engagement and monetization metrics are very strong.
Ladies are spending more time and money in our games and we achieved record revenues for goldfish and quick hit.
Player LTV and retention is at an all time high.
We're already generating attractive returns on our AD spend as we increase the funnel of new players and continue to grow our business.
And even as we grew our user base payer conversion matched our record results from the fourth quarter 2021.
Standing at eight 9%.
This is 80 basis points above our conversion rate of eight 1% in the first quarter of 2021.
As we look forward, we expect to benefit from the investments in our growth initiatives in the second half of 2022.
And then the impact of the top and Bottomline will accelerate into 2023 and beyond you can see why we're excited about our future.
Now turning to cash flow.
We generated $37 million in operating cash flows in the first quarter, resulting in strong conversion rates.
And even after paying $106 million for the Electus acquisition cash on our balance sheet only declined $72 million sequentially and stands at $292 million.
The strength of our balance sheet.
Our highly cash generative business provides us with financial flexibility to execute on our vision, while returning capital to our investors.
So that and we were pleased to launch our first share repurchase program.
Selecting the capacity to execute on our growth strategy, while concurrently returning excess capital to shareholders through stock repurchases.
And given our current valuation we believe this is an opportune time to buyback our shares.
So to sum it up.
Thrilled about where we are and where we're going.
First quarter 2022 saw us reach our second highest quarterly revenue ever and we generated $37 million in operating cash flows.
As we continue to invest we are creating the foundation for sustainable topline growth and profitability.
We have a lot of exciting initiatives and look forward to continue to generate shareholder value as we execute on our plan.
With that I'll open it up for questions operator.
Thank you.
Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
Or withdraw your question press the pound key.
Thats Star one to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ryan Ryan <unk> with Craig Hallum. Your line is open.
Good afternoon, guys congrats on the results and the newly authorized buyback.
Thank you very much.
Curious on the contract you have with light and Wonder I was a three year contract. When you guys IPO at I believe it expires in may, but any update on plans and new arrangements there.
Yeah. So Ryan first thanks for the question, it's great to get to talk to you.
You know as we know the contract is coming to the inherent in May and we have been under negotiation.
For the past few months to strike a new deal.
Both companies are very excited about the relationship we've been working very well together and we've even put together some shared roadmap. So I felt I felt very confident that we're going to head towards a no deal.
Great News is there is zero impact to the business end and the short term if the deal isn't.
Don in the next few days, because we still have 100% access to all of the slots that are released or that we have access to before may 2022 cell.
And excited for the new deal and I can't wait to continue the partnership.
Great.
As you consider evaluating the potential for in App ads as far as legacy side play games go any updated thoughts there kind of as you've had a chance to digest the electus.
<unk> and what that brings.
Yeah, Yeah for sure.
I'd like to this acquisition is just opening up at another doorway to a much larger much larger $13 billion in app advertising.
We're learning every day.
We immediately see a home for the.
Yeah in App advertising and our Solitaire Pat adventure game.
We went back to redesigned to include it as part of the par.
The core part of the.
Meta itself. So it will increase the reach we are currently evaluating whether or not it would make sense in any of the other games inside the portfolio and as soon as as soon as we have a clear path there well make sure.
That we share it but we are super excited that it does open up that huge market for us and as we have our.
Our plan to continue expanding in casual and gives us a much needed leg up.
When exactly did you get do the redesign on solitaire pets any initial read throughs, albeit probably early and reactions yeah. So.
So after the acquisition of Electus suddenly had access to that technology.
We have reevaluated the solitaire pad adventure game, which we would have felt having an AD monetization arm to it but we didn't have that technology. So we left it out.
With the close of elect deaths, we immediately that hey, if we're going to do it if it makes the most amount of sense to do it right now.
Turning it into a high bred economy that gives us the ability to get the full reach of AD monetization. But also include the stickiness and engagement of our IAP, we started that design and development, let's call. It in the last four to six weeks.
We're hoping to relaunch the game with the AD monetization Annette.
Let's call it late third quarter early part.
Got you a good last one for me just on the buyback any.
Extra commentary you can give us is planning to be kind of programmatic or opportunistic. Thanks. Good luck guys.
Yeah. So you know as we look at how we're going to continue to take care of our value to the shareholders. You know, we always look at C O N L organic and organic.
And different ways to drive value, we looked at the stock buyback, especially around the fact that our we believe that our our share prices much are very undervalued right now and so now voted on the actual buyback in the last board meeting and we plan on executing.
Anything on it no matter what is happening as long as the value of the stock is.
Undervalued.
Helpful. Thanks, Josh Good luck guys, yes, Thank you Ryan.
Thank you.
Our next question comes from the line of Benjamin solve with Deutsche Bank. Your line is open.
Hi, This is Spencer in place have been here.
What's the market backdrop is getting a little bit more choppy how would you assess your exposure to a macro economic downturn.
Do you think the impacts from a recession might be different for social casino versus other forms of video games and entertainment.
You know it's a.
First thank you for the question Spencer.
To meet you.
Yeah, the great thing about video games, especially mobile video games is theyre very inexpensive form of entertainment that you're able to basically have that yeah. The palm of your hand, all the time and they're also low farms Ah well payment forms of entertainment. So we.
We don't expect to see any real downturn happened because of inflation or is that market and as of today, we've seen actually increase in engagement and kpis for our different games.
So with that said, we're going to continue to evaluate to see if there is anything one way or another but right now we actually are very bullish on the fact that.
Our games continue to grow we continue to have record quarters, and we don't see that stopping anytime soon.
Great. Thank you.
Thank you. Our next question comes line of David <unk> with J P. Morgan Your line is open hi.
Thank you Dana just to follow up on the 10% revenue growth guide can you just confirm the same underlying guidance you provided on the prior quarter call in terms of outperforming in social casino sector.
Yeah. So let me jump in and then I'll have Danielle.
Kind of follow it up.
So as we now according with Eilers <unk> <unk> they talked about.
<unk>, 7% for the year, we have consistently as a company been able to outperform the market and we're still very we're very positive that we will continue to do it.
Our quarter ended up.
Almost exactly on plan with many highlights to it with quick hit having a Carter all time quarterly record goldfish, having a six <unk> six.
Six consecutive Jack.
<unk> party after setting another year like heartedly record had one of its top five quarterly records and so we feel very very confident about the health of the business and how it's going and continuing.
To beat the market.
Tire social casino, Daniel anything you want to add a couple of things so in the 10% year over year growth remember that we're going to have like 10 months of Electus revenues included in that guidance.
Right now what we're seeing in the social casino market.
Approximately four 7% growth for the full year.
So we believe this is definitely there.
Revenue number that when it will be able to hit.
Okay, and then Josh you talked about that that Oh go ahead David.
It's going to say, we feel very good with the guidance that we gave and we lay out we felt like we're going to continue on the path that we have.
That way.
Early this year in Q1.
Okay, I think Josh you touched upon it a little bit in your prepared remarks.
Would be interested to hear more about.
How youre thinking about leveraging the electors player base over the course social.
Casino portfolio.
Yeah, Yeah for sure you know that.
The hyper casual all our market is one that generates a lot of installs in fact, it's like 40% of all the installs of the entire casual market and inside of there is a large portion that overlap with our core demographics throughout all of social casino and so as we.
We get them and to the Electus games and we are understanding the players we will we will start.
Cross platforming them or cross gaming them to the higher LTV games and are in the rest of our portfolio in order to extend the lifetime value of each individual now with that said the eyewear.
Two months from the close of the acquisition and we're still doing the early integration so.
So it will take some time before we start actually moving people over I think you'll start seeing the actual move Matt happen.
Call. It Q4 Q1 up 2023.
Thank you.
Yeah.
Thank you our question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the question I want to come back to some of the comments you made in the opening remarks about marketing investments and you seem like you're seeing pretty good returns on deploying money in marketing channels that seems a little bit in contrast to others in the broader industry. They are talking about compressed rois are or pricing inflation or the elements that maybe.
Lower returns given some of the privacy changes that are made more broadly in advertising just wanted to go a little bit deeper on what youre seeing maybe some of the channels, where you're finding some success on the marketing side and maybe following up on the last question. How do you think about elements of mining existing user and gamer basis from the first party standpoint to build.
<unk>.
Our marketing engine that could drive higher ROI just beyond the short term comments in the prepared remarks.
So al Firstly.
First and foremost I'm going to give the credit to our.
Extremely talented <unk> team.
They put together a plan for this year and expected paybacks return.
And they are exceeding all of the expectations. So we went into the year, what the highest ltvs across our portfolio and with having the highest ltvs that allows us to look at potentially spending more for user acquisition.
Or CPI is for each individual.
We came in with assumptions up a little bit of growth quarter over quarter, but not that much for CPI and it held actually underneath what our original projections were and the Ltvs ended up being higher. So this is how we ended up at <unk>.
Our beating our own expectations by about 3% for the quarter.
Yes, we've seen this across most of the major channels.
And I wanted to give again once again the credit goes to the growth team and the game teams to grow.
Came in finding the right people and the game teams for building a product that is really engaging the users and then.
Giving them the experience that is causing more and more of them to become payors.
As what you saw with our highest number of payers that we've had as a company ever including the height of Covid.
With the first party data I will say, we are talking about this all the time and one of the advantages of the Electus acquisition as it gives us a lot more first party data to a lot of installs per <unk> per.
Per year or per call it per month.
I don't know that we're looking at getting into the AD advertisement business, but an hour, but keeping that first party data. So we can use it across our entire portfolio is actually something we are we're talking about today and we are planning on utilizing <unk> as a company as we start doing their crop.
<unk> platform, because as we all know, it's getting harder and harder to.
Reach new users.
And that is an advantage that it will give us as we continue to expand our.
Casual.
Great. Thanks for all the color and look forward to the analyst day next week that us to arc.
Thank you.
Our next question comes from the line of Aaron Lee with Macquarie. Your line is open.
Good afternoon, Thanks for taking my question and congrats on the quarter.
Thank you Steve.
Yeah, nice surprise to see monthly users and payers up so much.
I wanted to dig a little deeper on that was that a function of your decision to extend the payback period.
Or certain features where developments you introduced in the quarter just curious if there's anything you'd call out there.
Yeah. It is literally a mixture of both.
We had the perfect of being.
Being able to increase smart because of the heightened LTV is we were able to break out in more users.
The health of the games has us at the top of the retention. We have had and then the legacy users are also more engaged and they have been which is why we're seeing such an increase to our DAU and also and then a monthly paying users.
Because theyre so engaging we're seeing a decrease in churn. So it's actually all three of them together is what is what drove the increase in tier one.
That's fantastic.
As a follow up in your prepared remarks, you noted.
<unk> launched two new games in the quarter can you share how many games are in the pipeline.
The roadmap looks like for the balance of the year.
Yeah, So I can't share the exact number because it will fluctuate quarter over quarter, mainly based on market opportunities.
And development.
I would say that they are normally going to released somewhere between three to call. It six games that Carter.
And the difference between the three of the sector, sometimes you know that the amount of development if it the charter development.
Two if there's a trend that is coming that we wanted to take advantage of.
Or just just three we have more bandwidth than we originally thought and we're able to create more herself.
I wish I could give you an exact number but it really does fluctuate quarter to quarter based on the opportunity.
Okay. That's helpful. Thanks, so much and see you guys next week.
Yeah.
Yeah.
Next question comes from the line of Franco Granda with D. A Davidson your line is open.
Hi, Good afternoon, everyone. I know that you said you were trying to keep the call short, but I think that we're just making it difficult for you.
Just following up on a question earlier can you. Please break out what your AD revenues for the quarter were and then can you talk about what are your expectations for AD revenues essentially I like this.
As a percentage of the growth youre seeing for the full year.
Yeah. So first yeah anytime I get a chance to extend the phone call talking to you. It's definitely worth it. So you know good for all of us.
Because the acquisition happened in March so it was a very small part of Q1, we did not break out the AD monetization and when we decided not to disclose it for the quarter we are evaluating.
How to do this and looking at implementing a new breakout at the end of Q2.
Or maybe Q3, depending on the timing, but also a breakout of the kpis.
Daniel how would you like any color you think that no I just want to make sure you separate the kpis.
Okay that's out.
Hopefully that.
Okay.
Okay, Yeah that makes sense and then another question earlier.
Let's see.
<unk> talked about 9% conversion.
And that's one of the highest I've seen on the industry. So congrats on that but I guess to me. The logical question is how sustainable do you think that is moving forward for you guys.
So we believe it's extremely sustainable.
It really goes to show you, how we're functioning as a as a company we're hitting on all cylinders when we're bringing in the right people into the game our live ops and events are engaging the users on a day to day basis as well as they ever have that pneumatic features coming in the game are changing.
Behaviors and we're using the data analytics in order to keep tailoring and morphing the game for people.
All of this is driven through our project all star and I think we're just seeing the beginnings of this and as we can.
Take the learnings of project I'll start and get embedded into the Si play and Jen and hook it into the rest of our portfolio.
I honestly don't know what the upper bounds are but I can tell you that I believe that will continue going up for sure.
Excellent that's very encouraging and then and then lastly.
I guess should we expect to hear some type of long term financial model.
Yeah.
Uh huh.
So as of right as of right now, where we're not going to talk about exactly what's going to come into the Investor day for next week I do believe there are a lot of exciting news and theirs.
A lot of things that will be worth coming in there. So I think I'm going to tell you you're going to have to wait to see.
Alright, it sounds good.
Looking forward to that.
Hi.
Operator, we have time for one more question.
Our final question comes from the line of Matthew Thornton with true Securities. Your line is open.
Hey, good afternoon, guys. Thanks for squeezing me in.
Josh I joined late so I apologize I'm going to ask couple of questions that are probably already been answered so I apologize.
It sounds like you guys are reaffirming the same revenue guidance I think you had talked about doing better than the four 5% for core social Casino then when you layer in a link to should get to 10% is want to make sure that I that I heard that right and any update on the full year EBITDA.
Margin outlook, I think it kind of triangulated to about 29 spot, 2% is that still kind of how youre thinking about the full year of them. All so I'll stop there and then I've got a couple of follow ups, Yeah, no exactly exactly right. We felt like our Q1 was really exactly on plan, we're actually saying ahead of expected on our AD revenue and our.
Kpis on our core titles look really good.
<unk> tests performed almost cause it T.
Model.
So from our side, we are 100% on on plan for the year.
Perfect.
One thing I would add is from the step down we had margins in Q1, youre, probably going to see some of that coming into Q3 or Q2, and then it will start to see it ramp into Q3 into Q4 to get to that full year, 29% EBITDA margin.
So think about something maybe flattish in <unk> before it starts to upward trajectory.
That's fair.
Okay got you.
And then just a couple of the initiatives I just want to touch on quickly you talked about solitaire pet adventure.
A little bit earlier.
I think we're getting to the point, where maybe we're getting close to really starting to lean in to to UA I'm just kind of curious where we are in that in that path are we leaning into yet or are we still kind of trying to figure things out.
And then similarly project X or are we still on track for the back half of the year.
Yeah, So and that's kind of the Bob on the South tower pad adventure, we did talk about a little bit earlier.
So.
As we were finishing developing the game. We also closed on Electus and when they close down Electus, we got access to AD monetization technology that we all believe as that is a good technology to integrate and to solitaire pet adventure to be honest definitely would've had that technology.
Frank We would have had we would have done a hybrid design of the game upfront, but we didn't but since we're looking at the long term of the game and making sure that we.
And create the best games that we possibly can.
We actually decided to take a step back.
Redesigned it a little bit to add they add AD monetization element into it.
We're doing that development on that right now and I would expect to see the game relaunch, but.
Relaunch with the inclusion of IAA and late Q3 early Q4.
As far as project tax goes we are hotter pursat on an on plan with our milestones and the game that's looking amazing I can't wait to reveal more next week.
Now please please join in on the 17th because we are going to.
Get more information and and even show some pretty cool stuff with it.
Awesome, maybe maybe one last one if I could slip it in and then I'll. Let you go the DTC platform I think you had talked about as early as late this year, but probably more 23 is that still how youre thinking about it.
We're also on schedule out there I mean, it's kind of a process to get through it we cannot be more excited.
With that.
It kind of it's going to allow us to become closer with our customers because we're going to own the actual platform that they're going to play on.
We're gonna be able to tailor the experience a little bit deeper and yeah, it's going to allow us to be able to push some users directly to our own platform.
Hi, I'd expect to see the platform launch at the end of this year.
Not starting ramp until 'twenty, three I really wouldn't expect it to be meaningful though as far as a.
Contributing to the margins until probably 'twenty four.
Got it that's great. Thanks, everyone.
Great. Thanks, I'm going to turn it back over to Josh for some final comments.
Thanks, Ken.
Thanks.
I'm going to close by thanking our team members, who made the strawberry parts like today as possible their execution of our strategy is a testament to the culture that emphasizes high performance collaboration and teamwork across the organization a culture that continues to attract best in our best in class talent. So we can.
Can deliver fantastic games, even when we maintain a keen focus on our bottom line will provide more detailed insight and insights on the road ahead and upcoming opportunities to enhance shareholder values at next week's Investor day, I hope to see all of you there.
Great. Thank you everyone for joining our first quarter earnings call I'll turn it back to the operator.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now.
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