Q1 2022 Playtika Holding Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q1 2022 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker, Mr. David need I'm, Vice President of Investor Relations. Please go ahead.
Welcome to everyone and thank you for joining us today for the first quarter 2022 earnings call for <unk> holding Corp.
Joining me on the call today are Robert ethical co founder and CEO of <unk> and 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.
These forward looking statements apply as of today and you should not rely on them as representing our views in the future.
Undertakes 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'll also post our prepared remarks immediately following the call.
With that I will now turn the call over to Robert.
Thank you David and thank you everyone for joining our call today, we have a lot of ground to cover on today's call.
Well my business and important play ticket continues to be a technology driven care.
I think market detail.
We continue to perform well.
While laying the groundwork for further growth.
We're committed to become the number one mobile game and then determine entity.
Recall jumping to the business I will start with you.
About your great.
Humanitarian standpoint.
And ever since that will begin I would put parnell deep is the safety and word bingo part of our employees and their families.
People have been amazing and nothing makes me more proud.
Paul did you give the chart though.
We were well prepared.
Extra to move out many people before the war one for Baldwin Paragon, Ukraine already walking back the whole picture and although we will come back soon.
Well, although a business standpoint, we are not affected library.
Operating 100% locked gangl pressure and run from each brand has to Ken Berlin.
We're a global leader growth.
Of course in Guangzhou, and I always say, we had a plan and pick up all of our games.
As always well continue to invest in discipline ensuring.
Well for operation and further growth.
Moving onto our business topics.
Happy to say, we had a strong start over to you.
Total revenue in Q1 was $676 $9 million growing 6% year over year, and corporate and 3% quarter over quarter.
During this period, we also made good progress.
Investment.
Sure.
In the future area of emerging technology and opportunities while building a foundation for strong growth.
When it comes to all again portfolio, our casual games continue its high growth.
As you know the portfolio is again grew up in momentum quarter over quarter.
Our reported metrics and execution remains solid and strong we continue to drive strong consumer acquisition retention and monetization lever jamba juice platform.
Our games operation.
So kind of my life.
I am pleased that our exit.
Ben has continued to drive strong top line momentum Q1, 'twenty to 'twenty two.
Our business model.
To be that different from <unk> and other companies to grow revenue by light bulb operation.
You would think.
Yeah, the ability to bring jobs to our business, we've made investments to position our future just to play new categories rest in emerging technologies in gaming.
Our internal and external investments.
Locals to demand.
Believe it in the future will unlock value for Blake.
Thank you so much and Greg will continue.
Thank you Robert we had a strong start to the year with first quarter revenue of $676 $9 million up 6% year over year and up four 3% sequentially.
Adjusted EBITDA was $225 million down 14, 5% year over year and up three 8% sequentially reflective of topline momentum in the business and the strategic decisions, we've made to invest for growth.
Operational metrics performed well with average daily payer conversion, increasing 35 basis points year over year to three 2% and arb Dow increasing eight 8% year over year to 74 cents.
Our strong revenue performance reflects the commitment to our strategy of continuing to diversify our portfolio and applying our proven live operations and boost technology platform to generate sustainable long term player engagement levels.
During the quarter, our casual games now representing 52.5% of our revenue grew 27% year over year and five 6% sequentially.
Salto Grant harvest had a strong quarter, even during its transition to unity up 41, 7%.
We also had strong growth in june's journey of 34% year over year driven by the continued success of the memoirs feature that was launched at the end of last year.
Our casino portfolio was down seven 5% year over year, but up 2.9% sequentially. We're encouraged by the growth that we're seeing in games, such as Caesars Casino and World series of poker as our product Roadmaps are resonating with our players.
She just casino grew eight 2% year over year, and eight 7% sequentially as it celebrated its 10th birthday. During the quarter. It's strong performance is a testament to play chico's ability to drive momentum with older franchises with industry, leading live operations, new product features and creative marketing campaigns.
World series of Poker had its best quarter of all time revenue was up two 9% year over year and 10, 5% sequentially driven by the success of a new album and key features launched during the quarter.
WSI P is another great example of our ability to reignite growth in older titles.
<unk> momentum is also encouraging with sequential growth of one 7% despite year over year comps are down seven 7% and we remain optimistic about the roadmap ahead for slaughter mania.
Turning now to some updates across our portfolio of games. We're excited for the launch of merge stories in the third quarter merge stories as an innovative hybrid game that combines the core merge game mechanic with casual belden battle elements and it was built by our jelly button studio the creators of board games.
In addition, we have two titles in development that are slated for soft launch testing later this year.
As it relates to switch craft, while were proud we developed an innovative game enjoyed a positive reception from early reviews ultimately the kpis did not meet our internal metrics and the ROI did not achieve our threshold to continue to invest and therefore, we've made the decision to halt marketing and redeploy the switch craft team within will go.
When it comes to investments in new games, we're going to invest where we see potential to become a $100 million franchise or greater if we don't see that potential we will shift resources to better opportunities for growth, which includes other new games in development and core franchise support.
With multiple games in the pipeline and merged stories launching later this year, we remain focused on executing our disciplined capital allocation strategy and investing where the ROI is most effective.
Shifting the marketing our strategy included a shift in focus and our performance marketing efforts to target the highest value players and also our continued work to enhance the brands of our games and drive usage with traditional advertising methods such as T V ads in conjunction with celebrity partnerships.
And our casualty portfolio in Q1, we continued to focus on building and strengthening our casual brands using 360 degree marketing campaigns driving a 10% increase in downloads. Once you campaign to highlight was the celebration of the 10 year anniversary of Pingo Blessed with a campaign featuring Meghan Trainor the campaign highlighted the visual enhancements we've.
Recently deployed in the game and take viewers on a journey through the new game elements.
Our casino themed portfolio, we partnered with Sharon stone for Slaughter Mania, Ty Pennington Caesars Casino and Laurence Fishburne for World series of Poker. These campaigns succeeded in bringing new users to the games, while also increasing awareness of the brands.
Turning to our P&L cost of revenue as a percentage of revenue improved 100 basis points year over year to 27, 6% from 28, 6%. This shift was driven by the percentage of revenue flowing through our proprietary direct to consumer platforms to 22, 5% up from 18, 1% in the FERC per score.
A 2021 or.
Our direct to consumer platforms continue to be a competitive advantage and strong source of margin for play do you got.
R&D expenses increased by 32, 3% year over year, driven primarily by growth in head count and increases in compensation expenses for our employees.
Sales and marketing expenses increased by 28, 3% year over year, driven primarily by increases in marketing and user acquisition expenses.
This increase is due to additional marketing and incremental user acquisition expenses that we had budgeted in the quarter for spending on <unk> and several key offline marketing campaigns are spending for offline marketing campaigns are typically the highest in the first quarter and we expect this amount to ease sequentially for the rest of the year.
G&A expenses declined by 23% year over year versus an elevated level in Q1 of 2021 due to costs related to the successful completion of our IPO.
This decrease was partially offset by an increase in head count and increases in compensation expenses for employees.
Our effective tax rate in the quarter was 10, 4% income tax expense in the first quarter included the impact of the release of valuation allowance on certain foreign deferred tax assets GAAP.
GAAP net income was $83 $2 million compared to $35 $7 million in the prior year quarter.
As of March 31, we had approximately $1 $1 billion in cash and cash equivalents and short term deposits and over $1 $7 billion in total available liquidity to fund growth opportunities.
Looking out to the remainder of the year, we're providing full year guidance to ensure all of our stakeholders have a clear understanding of our expectations for the business.
For 2022, we expect revenue of $2 $73 billion and adjusted EBITDA of $940 million on.
On the top line, we expect continued strength driven by an exciting content road map across our portfolio with a compelling set of new features.
We're encouraged by solid Kpis in the first quarter and we expect continued strong customer engagement.
Similar to the first quarter, we will continue to invest as we reset the foundation for the company, establishing 2022 as a transition year to strengthen our position for the future. For example, we believe <unk> presents an exciting opportunity and we'll be ramping up investments to achieve growth in 2023 and beyond.
We also intend to ramp up spending on some of the new games that we mentioned earlier as well as on acquisitions and initiatives that we announced during the first quarter. For example, just play Dot L. O L. Greater of the multiplayer game one be one dot L. O L has a fantastic team of R&D professionals and this acquisition is part of our overarching strategy to invest and test new genres.
As for growth.
We expect our incremental investments in new games, and recently acquired businesses to reduce our adjusted EBITDA by approximately $55 million this year.
Other investment areas include increased compensation for our employees to retain top talent and continued development of our R&D capabilities.
Finally, our games are no longer available to download in Russia, and we anticipate a $10 million impact to adjusted EBITDA. This year due to this.
We expect 2022 capital expenditures of $140 million.
In closing, we're very encouraged by the strength of our business highlighted in the first quarter by strong revenue growth and good Kpis performance.
We have a history of industry, leading margins and we'll continue to look for areas of inefficiencies that we feel will position us well for 2023 and beyond.
With that I'll turn the call back over to David.
Thanks, Greg.
Before we open it up to questions. We want to note that we do not have an update on our previously announced evaluation of strategic alternatives and will not be answering questions related to this topic with that we'd be happy to take your questions.
Operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone we ask that you. Please limit yourself to one question and one follow up question. You made then return to the queue to withdraw your question press the pound key please standby, while we compile the Q&A roster.
First question will come from Matthew cost with Morgan Stanley . Please go ahead.
Hi, everyone. Thanks for thanks for taking the questions I guess, maybe starting with kind of casino versus casual. It seems like you had some continued very strong growth as you noted in the casual business.
And you know the casino business down I think single digits year on year.
Caesars out farther mania down I guess, what are you seeing happening you know across the various genres disease casino experiencing some sort of seasonality or you know COVID-19 impact of reopening impact that casual isn't you know, what's what's driving the difference between those two and then perhaps a related question just.
On marketing efficiency, you know you mentioned kind of shifting your performance marketing doing a little bit more television celebrity partnerships I guess, where are you seeing the most efficiency.
And how is your performance marketing comparing to a year ago I said this quarter. Thanks.
Hi, Thanks, Matt Yeah. So as we look at the quarter for Casino, obviously, we're very enthusiastic about the fact that that business grew at two 9% sequentially.
The casual portfolio grew five 6% sequentially and so that's really where our focus has been is driving roadmaps for sequential growth and a lot of many obviously returned to growth Caesars casino in World series of Poker had great growth I think world series of poker as one we'd called out just a couple of quarters back and had its highest rev.
A new quarter ever in the first quarter and so I think the.
Performance has been good and the casual portfolio, obviously, that's where we have.
Strong performance up 27% year over year, driven by especially by solid syringes journey.
I think on the marketing side I'll, let Eric.
<unk> talked to kind of what we're seeing there but.
But obviously, we've done a great job diversifying our spend in terms of leveraging offline campaigns combined with Influencers and performance media to really drive results.
And really bring back and drive momentum in some of our oldest brands as well. So I think that I think it's been great for us in terms of regaining the momentum.
Raising awareness and driving results Eric I think you had some other clarity when to either yes sure.
Those who don't know me my name is aircrafts Chief strategy Officer.
We've actually been very encouraged by what we've seen on the performance marketing side year over year and I would note that youre comparing a host idea for a period and this year to a pre idea for a period and last year and when we look at the cost to acquire a paying user or ROI. After 90 days our average revenue per installed all very very positive across the majority of it.
Our games.
Great. Thank you.
Thank you. Our next question will come from Doug Crudes with Cowen. Please go ahead.
Hey, yeah.
You had indicated your you expect I think investments in new games to hit your EBITDA by $55 million this year.
Presumably you were investing in new games last year as well is that is that $55 million incremental to whatever that number was last year or is that just the absolute number and if so can you give a sense of what the incremental shift is year over year.
Hey, John Thanks for the question, Yeah, so for clarity, it's incremental spend across new games as well as investments.
<unk> marketing at <unk>.
So when you look at year over year, we were trying to give some transparency as to.
What are some.
Key areas of investment and highlighting that $55 million.
Okay, great. Thank you.
Thank you. Our next question will come from Eric Handler with <unk> partners. Please go ahead.
Yes, Thank you and good morning.
Wonder if you could talk about the reader core acquisition, specifically what has taken place there since the acquisition in terms of what you've done to the game and with marketing and.
As soon as the direction, you're heading with that title.
Sure. Thanks for the question. So if you look at most of the acquisitions, we've done in the past, it's typically taken us around 18% to 24 months to drive material impact in those businesses and we're on the same trajectory.
With <unk> of course, we continue to feel very encouraged by the design entertainment categories by the progress we're seeing and the.
Progress, we're seeing with the team.
So from a from an operational standpoint, everything seems to be going great and we look forward to proving out as we have in the prior acquisitions.
Great and then just as a follow up should we think about the 18 to 24 months timely.
Timeline to make a material impact that that should hold up well for just played by the L O.
Yes, that's the target.
Thank you.
Thank you. Our next question will come from Stephen Ju with Credit Suisse. Please go ahead.
Okay. Thank you. So Ah you mentioned you have two additional titles in development.
B varies from game to game Studios studio, but can you talk about typically how long eight game they spend in a soft launch period and I guess separately are theirs.
General slowdown the themes a sector wide as consumers are increasingly mobile and going on vacations and trips and.
No overall I mean from a stock market perspective, you can all see the change in public market valuations. So wondering if a you know.
These two factors are rippling through to private market valuations and potentially greater availability of assets for you guys to be looking at thanks.
Thanks, Steven obviously over the last.
Few years Theres been readily available capital via the private markets for emerging game companies and various startups around our ecosystem and as.
Those markets start to get affected obviously, it would seem that <unk>.
<unk> should come down.
I think we're seeing it being a more difficult environment, obviously for for entrepreneurs.
Trying to start a game company and so I think with those opportunities were a great partner, obviously, we have a balance sheet to go and execute on that so I think for us.
Youre setting up nicely from that perspective.
In terms of say on your first question on on New game development.
The games can be in.
Various forms of testing for three 612 months, depending on the game.
And then obviously you know something like a switch craft it took us six months to sort of make a decision. There. So you know I think we like to move pretty quick you make decisions.
Based on results.
Thank you.
Thank you. Our next question will come from drew Crum with Stifel. Please go ahead.
Okay. Thanks, Hey, guys.
Your plans to move ahead with the commercial launch of merge stories, but decision to pull your spending on switch Kraft how is merge stories tracking in your test markets relative to where switched craft was at the same point just trying to gauge your confidence in that game ahead of its launch and then I have a follow up.
Thanks drew.
It's hard to compare genres.
And as of yet.
Marriage story is a different genre, but my different studio I think we're.
Obviously pleased with the early results and therefore pushing forward with it.
The soft line Oh, sorry for a global launch and I think we have other titles that would be pushing forward with.
With soft launch and so I think you know.
Data is there to support it.
<unk> of new games.
And you know the goal obviously is to have a commercially viable successful titles that come out of that slate.
But if the data isn't there we'll go back investment.
Got it.
Then your last update you provided various metrics for January I'm curious, if you'd be willing to provide any commentary on.
Performance in April .
Yeah, I know sorry, we're not we're not giving a month.
Month to month data that was you know we gave January this year and we'd give generated last year as part of our.
A different announcement, but we're not giving a month to month data going forward.
Fair enough okay. Thanks, guys.
Thank you. Our next question will come from Clark Lampkin with BTG. Please go ahead.
Hi, Good morning, two quick ones for me on DTC first.
As we've been seeing that sort of expanding as a percentage of revenue I wanted to see if you could talk about any assumptions that are built in for 'twenty. Two in terms of new games may be launching with the browser version or if that is.
We still expect it to be a more meaningful component of revenue going forward.
And then second I'd like to follow up on Erik's question around reworks, Craig in the past you've talked about that being.
Leveraging the company technology to move into adjacent spaces and I'm curious if that's still you know may be part of the roadmap and is that something if so that we could expect to see perhaps in 'twenty three or could it be earlier. Thanks.
Thanks, Larry in terms of our direct to consumer channels, obviously very pleased to drive that up to 22, 5% of revenue. We do have one additional casual title on the road map by end of year, obviously have to see how that prioritizes versus other initiatives, but we.
We continue to expect growth there in.
In terms of your follow up question on reworks.
Similar to our strategy to adjust play as well, it's how do we expand in new genres learn and test around our monetization capabilities, where we see opportunities for growth really really press on those and so if we're able to be successful I think with those genre is then we'll push ahead going into other new genres, but I don't think we will do it.
Without that proof point around success, just as we have with past acquisitions.
Thank you. Our next question will come from Aaron Lee with Macquarie. Please go ahead.
Hi, good morning, Thanks for taking my question.
I wanted to touch on just play for a little bit can you talk about how long you were in discussions for that acquisition and should we see this as a near term contributor.
Back to EBITDA or is this more of a long longer term project.
Sure.
And Israeli business I can't comment on private discussions, but what I can say is that it's a.
Minimal impact to revenue and its there'll be operating losses and 22.
Okay.
In terms of your guidance.
Can you put into context, the major puts and takes that could cause you to come in above or below the guided range are there any key features on the road map or major developments that would be a major impact.
Yeah.
No no so what I would say regarding our guidance. Obviously, we took in the first quarter and trends, we're seeing in the marketplace. Obviously.
We've seen it for the broader market.
Q1 looked like it was pretty difficult for some of our comps and some of the market and obviously, we were able to grow year over year and sequentially and so I think this type of operating environment bodes well to us given our focus on monetization and live operations and retention of users and we'll continue to excel in those areas.
Okay.
Thank you. Our next question will come from Franco Granda with D. A Davidson. Please go ahead.
Yes, good morning, everyone.
Two quick questions here. So a few months ago, you appointed a BP or watching technology I was hoping you could talk about you referenced then perhaps any progress you've made and then if you could speak to the mix between casino and casual for your direct to consumer platform. Thanks.
Thanks for the question and as I always said in the past for US every new platform as a new opportunity logica today as the best operator in the market.
We are really excited about the new opportunities, we're investing in our thoughts for the future and I think in the end of the day.
<unk>.
Blake's gene and web three would give us ahead of our competitors.
What was the second question.
It was if you could give us the mix between casino and casual for your direct to consumer platform, just trying to get that transfer.
So now I'd say most of it coming from the casino genre.
This year, we're going to add another title from the casual.
And this is again the amazing a tool.
<unk> owns in the others don't have and would give us advantage make the margin better.
Indeed drive revenues in our platform.
Alright. Thanks.
I am showing no further questions in the queue at this time I would now like to turn the call back over to management for any closing remarks.
Yes.
Yes.
I think we need to look at what happened last quarter and see the difference between play to kind of add those plans in the market.
You guys did a very good quarter.
We grew the revenues from Q1 'twenty one that grew their revenues from Q4, I think the opportunity in the market as a major problem.
And the thing that I wanted to speak about it in the last few days.
Vintage and different of Descartes doing running game revenues by operation when utilization.
And we see it right now when the market becomes and database shining. So we're really excited about this year, we're really excited about it.
And we're really happy promo Russo thank you so much removal.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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