Q4 2022 Playtika Holding Corp Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the Playtika fourth quarter 2022 earnings conference call. At this time all participants are in a listen-only mode. For the speakers presentation there will be a question and answer session.
Speaker 2: To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tae Lee, SVP of Corporate Finance and investor relations.
Speaker 3: Welcome everyone and thank you for joining us today for the fourth quarter of 2022 earnings call for Placica Holden Court. Joining me on the call today, Robert Antichol, co-founder and CEO of Placica and Craig Abrams, Placica's president and chief financial officer. I'd like to remind you that today's discussion may contain four looking statements including
Speaker 3: 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 their control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future.
Speaker 3: We undertake no obligations to update these statements after this call. For a more complete discussion of the risk and uncertainties, please see our filings with the SEC. We have posted an accompanying slide deck to our investor relations website and will also post our prepared remarks immediately following the call. With that, I will now turn the call over to Robert.
Speaker 4: Thank you everyone for joining our call today. First, I want to thank all our employees globally for their contributions to our success this year. I am pleased to report that we ended the year on a strong note and I am proud of what we achieved in 2022.
Speaker 4: We met our financial guidance and we remained focused on our mission to deliver the best mobile gaming experience to players worldwide and maximizing value for our shareholders. We believe that we have the best people, technology and platform for navigating the current micro-environment facing mobile gaming.
Speaker 4: For the full year 2022, we maintained our leading position across five different game categories. We also had nine of the top 100 highest-grossing mobile games in the US.
Speaker 4: And we will continue to be industry leaders while identifying opportunities in every segment of the business.
Speaker 4: I'm excited about the next phase of growth for Playtakers. Our people are our strongest asset and we proud ourselves in our ability to develop and support them with the best in-class technology and tools needed to be the leading mobile gaming company.
Speaker 4: Our digital studio platform, powered by AI, continues to grow and take a bigger role across our studio's game operation while optimizing monetization. Our reason to digitize the gaming operation space is progressing across all relevant gaming functions, from user acquisition to content generation and player experience.
Speaker 4: We are focused on optimizing the capabilities of our platform with a long-term plan of integrating digital studios capabilities across all our games. To summarize, I am confident we will strengthen our position in the mobile gaming industry.
Speaker 4: continue to grow cash flow while maximizing long-term shareholder value. I will now turn it to Craig who will discuss the quarter and the year in greater detail and provide our guidance for fiscal year 2023.
Speaker 5: Thank you, Robert. We posted financial results that were better than implied Q4 guidance this past quarter. It made significant strategic decisions to position the company for future success. We made several strategic decisions in 2022 to position the company for continued success after recognizing that the industry landscape was evolving and impacting our portfolio.
Speaker 5: evaluation process out of the creative team in our WUGA studio.
Speaker 5: What we saw that our new games received positive feedback from our players and achieved stronger tension numbers. The marketing environment and increasing CPIs for new games made it challenging for us to scale these games properly. Based on the current marketing environment, we made the decision to temporarily suspend our new game development pipeline, until the ROI for new games is economically viable. Complementing this strategic shift.
Speaker 5: We are leveraging our mobile gaming and regional expertise to make strategic investments in high growth potential studios. This past quarter, we announced our investment in ACE Games, the developer of Fiona's Farm. Our investment in ACE Games is a great example of how we will continue to seek exposure to games with high growth potential and access to world class product teams. With our existing portfolio of industry leading titles, we continue to focus our marketing efforts on higher quality traffic sources.
Speaker 5: in generating ROI driven by our scale and AI technology. Our marketing strategy of combining our UA efforts with offline campaigns is a competitive advantage for Platica and will continue to maintain our focus on Tier 1 markets and shifting increasing more of our UA spending to our growth titles.
Speaker 5: Turning out our business results for the quarter. Going forward, we'll provide revenue detail for our top three highest grossing games. Revenue across our casual theme games grew 2.7% versus a year ago. Fingo Blitz revenue was $155.1 million up 18.4% year-over-year driven by several in-game live-off celebrations around the game's 12-year anniversary and other special themes throughout the quarter, including unique mini-games.
Speaker 5: We introduced a new team gameplay mechanism where our players can now work together to complete missions that earn the virtual rewards in the game. We made technology improvements in the game through our Play Now initiative, which significantly decreased the waiting time to start a new bingo round by 65% on average.
Speaker 5: We saw that this not only improved the overall experience for our players, but encouraged them to play more. Solter Grant Harvest Revenue was $72.8 million, up 18.7% year-over-year. We are excited by momentum in the studio. The strong combination of albums and collections events around Halloween, Christmas and Year Z, all contributed to the studio's success this quarter. It was a record quarter for Solter for both revenue and vain users. In addition, the studio broke the $1 million daily revenue mark for the first time. Social There's a casino team game surrounding for the fourth quarter was downheat.
Speaker 5: the game economy. We will continue to provide updates on our progress.
Speaker 5: Before we turn to an overview of our consolidated results, I'll spend some time talking about the presentation of the Chester Debitai going forward. This will be the last quarter where we discuss retention plan in Chester Debitai, which we previously referred to as a Chester Debitai, with addbacks for our long-term cash compensation plan and M&A related
Speaker 5: year we achieve results within our financial guidance range. We generated $2.616 billion of revenue of 1.3% year over year, $275.3 million of net income down 10.8% year over year, and $919 million of retention plan of Jeff Zibidda down 6% year over year.
Speaker 5: $228.9 million of 7.7% year-over-year. Our retention plan adjusted even done margin was 35.1% for the year and 36.3% for Q4. Credit Adjustment even done for the year was $805.1 million. It decreases of 5.1% year-over-year. For the fourth quarter, Credit Adjustment even done was $202.6 million and increased of 15%.
Speaker 5: which includes purchase of property and equipment, capitalization of internal use software, and purchases of software for internal uses, below our 22 guidance of 125 to 130 million dollars. We successfully executed our tender offer in Q4, returning $600 million to shareholders, and retiring over 51.8 million shares. Recognizing the macro headwinds facing the industry.
Speaker 5: We slowed the pace of hiring earlier in the year, and we ran the business with a focus on cost discipline across the entire organization.
Speaker 5: We are highly committed to ensuring that our expense profile is aligned with our growth outlook. We are starting to see positive impact of these strategic decisions in our financial results.
Speaker 5: Turn now to specific light items for the fourth quarter. Cost of revenue declined 1.1% year of re-ear, and operating expenses declined by 9.1% year
Speaker 5: Our credit adjusted with our margin increase sequentially every quarter this year starting in the first quarter. While we experienced revenue and headwinds throughout most of the year, our focus on efficiencies enabled us to achieve these results. R&D was stable, increasing by 0.9%. Sales and marketing declined by 17.7%. The decline in sales and marketing expenses were driven by timing of some of our offline campaigns.
Speaker 5: The strategic decisions that we made this year regarding our new games pipeline and the reduction marketing expenses in Redocore. Q4 of 2021 had outside spending for offline campaigns. GNA expenses declined by 7.3%. This was primarily driven by decreases in share-based compensation and our long-term cash compensation plan. GNA income was $87.5 million.
Speaker 5: As of December 31st, we had approximately $768.7 million in cash and cash equivalents. Our effect in cash rates of the year was 23.7%. Looking at our operational metrics, average GPU increased 0.6% year-over-year to 313,000. Average GPU declined 14.6% year-over-year to 8.8 million. Our Dow increased 14.7% year-over-year to 78 cents. Turning the marketing, as mentioned, we had less production cost this quarter for
Speaker 5: $3 million. Turning now to our guidance and financial outlook for 2023.
Speaker 5: Turning now to our guidance and financial outlook for 2023. I'll begin with our revenue expectations.
Speaker 5: We expected to deliver full year revenue between $2.57 billion and $2.62 billion compared to $2.616 billion in 2022. We expected to generate credit adjusted with that between $805 million and $830 million compared to $805.1 million in 2022. We expected to employ $115 to $120 million in capital expenditures. As we look at the outlook for our business in 2023, we are confident in our roadmap in each of our studios. We will continue to prioritize and invest in our strongest franchises across our full-game portfolio to build on the momentum they've achieved. Finally, this year will be another year where we will continue to be focused on cost discipline, prioritizing our investment decisions on high ROI projects while navigating a difficult macro-economic environment for mobile gaming.
Speaker 2: that we will expect to improve in 2024 and beyond. With that, we'd be happy to take your questions. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our first question comes from Eric Sheridan with Goldman Sachs, he may proceed.
Speaker 5: Thanks so much for taking the questions. Maybe two if I can. With the way you're approaching the portfolio now, can you help us then understand how we should be thinking about the portfolio's overall growth, VZV, sort of broader mobile growth? As it appears, there's gonna be titles where you're investing in growth and titles where maybe you have a focus for harvesting cash as well, just because of various things you're seeing in the marketing dynamic. And the second part of it would be coming back to the marketing landscape comment you made. I would love to get a better sense of how far off you think the marketing landscape is ROI possible as a measurement tool there to where you could see a correction in marketing that would bring you back into making more aggressive growth investments as we go through 2023.
Speaker 5: to just better understand what that cap might be between what you're trying to solve for and what the landscape is today. Thanks so much. Sure. Thanks, Eric. So in terms of the portfolio, we continue to invest in our biggest franchises. That's where we see our best returns and having the most success. So I think there's been a strategic shift where we're making those investments into those I think there's also been a strategic shift in our mindset around cost management and margin improvement. And I think, you know, obviously our revenue guidance reflects our view sort of for top line and the implied EBITDA growth reflects our discipline around cost management.
Speaker 5: In terms of the marketing environment, we continue to invest in offline campaigns, creating demand for our portfolio of games. We continue to leverage our AI technology to be more efficient in our media buying and continue to buy from a variety of diverse sources. So I think we continue to navigate its tough environment and doing a great job at navigating that. I'm not sure exactly what needs to change further for us to invest more. Everything's very scientific and ROI-based. I think the biggest impact that we saw in 2022 was to new game launches and we made strategic adjustment since. And are now focusing on investing externally and world-class partners where we can see opportunities to invest in new games.
Speaker 5: and temporarily suspending most new game development internally excluding WOLGA. Thank you. Thank you.
Speaker 5: temporarily suspending most new game development internally excluding WOLGA. Thank you. Thank you.
Speaker 5: All right, this question comes from Matt Koss with Morgan Stanley . He may proceed. Maybe following up on some of the comments you just made about the pipeline. So other than WUGA, the pipeline is kind of paused for the time being. Is the decision to restart investment in the pipeline? Is it really just a function of when the marketing environment normalizes or are there other factors and then based on whatever it is you're using to make that decision? Do you have an expectation that that might change in the near term or is this pause of the pipeline something that based on what you know today could persist for quite some time? And then secondly, just one more thing on marketing. Should we expect the typical step up in the first quarter and marketing where you lean in a little bit more aggressively after holidays as you haven't passed years? Thanks. Thanks for the question, Matt. So in terms of the new game pipeline, we continue to develop great games.
Speaker 6: throughout 2022 with great retention and monetization metrics. The real big difference from years past was the cost of installations. And with the CPI going up so much, the math around return on investment just wasn't working. And so until that fundamentally changes, we don't believe it's prudent for us to invest significant dollars in new game development. That said, there are certain categories that we find interesting. And we have an innovation lab at WUGAS still evaluating new opportunities. And we did make a $25 million investment in ACE Games in the fourth quarter, which is a fantastic game, Pionist Farm. And so I think we find great product teams with great products. We will make investments and be strategic about it, but in terms of the new game pipeline, the math, the mathx around.
Speaker 6: marketing just doesn't work right now. Thank you. And then just on the first quarter of that. In terms of marketing, you know, we don't we don't give a kind of quarter of quarter guidance. I think what I would say is, you know, we do we do invest and find the first quarter is a good quarter for marketing investments, but no specific guidance. Great. Thank you.
Speaker 6: just doesn't work right now. Thank you. And then just on the first folder of that. In terms of marketing, we don't give a quarter to quarter guidance. I think what I would say is we do invest and find the first quarter as a good quarter for marketing investments, but not no specific guidance. Thank you. Thank you.
Speaker 6: Next question comes from Douglas Kooz with Cowan & Company. You may have received. Hey, thank you. We're two months into 2023. It looks to us based on some hard work that you're having a pretty healthy start to year, particularly single blitz and solitary grand harvest. So could you comment a bit about what you're seeing in the first two months and how that sort of folds into your thinking about guidance for the year? Thank you. Sure. So, you know, 2022 was a year where, you know, we saw downward pressure throughout the year, but I think we started to see things turn around in the middle of the fourth quarter. And so we've seen positive improvements over the last few months. And obviously that was taking a consideration when we get when we provided guidance. And so while we've seen some positive progression over the last few months, there's not much we can comment further on. It's called. Okay. Thank you. Thank you. All right. Question goes from Steven Jew with credit suite. See my proceed. Okay. Thank you. So I guess.
Speaker 5: If you're having difficulty scaling the franchises, we would have to think that a similar back-drop is prevalent for other companies as well. So, you know, has the environment changed in terms of assets becoming available for you to potentially acquire? And secondarily, I mean, given the current environment, has your attitude toward running more in-app advertising to generate more revenue changed at all? Thanks. So, regarding the edge...
Speaker 4: We are not changing our policy. We never believed in the ads revenues which ride. I can say here we tried to do few tests but it's never worked well for us. Especially when you look in the environment today in the market, when the CPIs are high, so today if you are paying users in app, your attention is much better, much stronger than all other ad revenues. So it makes your game healthy, it makes your revenue more stable. And actually one of the main things that we achieved this year was a really more paying users to our circle. This was one of our target.
Speaker 6: So right now you can see the advantage of Platica that we are focusing in in-app and in-app purchase and it helps us to grow our users and help us to bring more paying users and this is a big advantage that we have on our competitors. And Steve, and do you have a first part of your question on the M&A environment related to marketing? I think there's two sides to it. The first side is you're seeing fewer startups being successful in their ability to scale new games, which obviously creates fewer M&A opportunities.
Speaker 6: On the other side of that, given their difficulty to scale, you're seeing opportunities to invest at better valuations and potentially acquire companies as they struggle in this environment. So I think those are the kind of two sides of the coin there. Thank you. Thank you. Our next question comes from Drew Krohm. It's people. You may proceed. Thank you.
Speaker 7: Okay, thanks, guys. Good morning. You know, as you enter 2023, can you address how the company is prioritizing uses of cash? You've announced a proposal to make a fairly sizable acquisition. You know, in light of that, you know, what leverage multiple are you comfortable? And then separately, on the direct-to-consumer platform, you know, the little more than 23% of revenue in 2022, what are your expectations for 2023? And is your longer-term goal still to be 30% fixed?
Speaker 6: Thanks, Drew. So in terms of our priorities, we're consistent with what we've said in the past and that M&A continues to be a priority for us in terms of adding franchises to our portfolio. If you look at our nine titles in the top one hundred and in 2022, seven of them came through M&A. So that continues to be for us, the means to which we want to bring titles onto the portfolio. In terms of leverage, historically we've said that one to three times net leverage is our target range, but for the right M&A opportunity, we consider going above that. That's sort of our public comments in the past and nothing's changed there from management's perspective.
Speaker 6: And then lastly, in terms of direct consumer, we continue to have that 30% target. We are adding two new titles onto the DTC platform in 2023. And so as we add titles into the casual portfolio on the DTC platform, we hope to see continued progression there. Great. What are those two new titles? June's journey in Saltair Grant Harvest.
Speaker 6: Thanks, guys. Thank you. All right. Question goes from Omar Jusuki with Thank you, America. Thanks for taking my question. Shortly after your third quarter call, you released an 8K that showed that you were lowering your performance stock unit, the best in thresholds. So, for example, previously the 50% threshold was 6% growth for 2023 through 2025.
Speaker 6: within within each year and then subsequently it was 1% growth and I just wanted to know you know was there any reason that investors should not take that as some sign of of New York your confidence in in 24 and 25 growth.
Speaker 6: within each year and then subsequently it was 1% growth. And I just wanted to know, was there any reason that investors should not take that as some sign of New York your confidence in 24 and 25 growth of revenue?
Speaker 6: Hey Omar, thanks for the question. We're not going to comment further on decisions made by the board in terms of the compensation committee. What I would say is that the market today is more challenging than it was just a few years ago in terms of growth for the overall market. That being said, as we mentioned earlier on the call, we have seen over the last few months continue positive progression. Okay, and if I could just ask one follow up on a different topic. You know, maybe since you guys are the experts and you see so many games across the industry, can you give us a sense of just kind of thinking game theory here? What's the end game for the mobile gaming market? Is this a market that we'll see a lot of exits in a couple years of things kind of don't turn around on the marketing side?
Speaker 6: and conduct commerce with. So I think as we look at the fact that, we have nine titles on the top 100 that we continue to grow our market share in the mobile gaming market. Our view is that it's gonna continue to be a highly strategic asset owning mobile games and owning market share within the top-grossing apps in the app stores. So...
Speaker 6: I think there will be continued consolidation just given how difficult it is to launch mobile franchises at scale today. And so those that have long lasting franchises with great brands will continue to have real value. Craig, I apologize for just clarifying the question. How do you see the level of competition within the industry as you go forward? And the reason I asked about potential exits is you would assume as an investor if if exit increased competition would fall and potentially your market share would grow as well as profitability in the industry. That's really what I was getting at is the intensity of competition as if the environment doesn't improve.
Speaker 5: I think the theme of consolidation is a good theme and that you'll continue to see consolidation in the industry. In terms of kept competitive dynamics beyond that, it's hard to comment. Thank you. Thank you. Our next question goes from Erin Lee with McCory. You may proceed. Hey, good morning. Thanks for taking me the question. So we're nearing the second anniversary of IDFA deprotation. And you've noted in your remarks that CPI's remain elevated. So as any of your thinking changed around cross-cell between your games or any other strategies to kind of supplement the paid user acquisition funnel. Hi, it's near.
Speaker 8: So obviously, we are always looking for a opportunity where we can increase our market share if we see an opportunity in a specific market where we have a localized game It's also something that we look at so we did something on the path and we'll continue exploring this further more Okay, thank you
Speaker 2: Our next question goes to Mary Candler with Roths M. K. M. you may proceed. Good morning and thank you for the question. Two questions. First, as you look at the social casino business, you have only sense of when revenue might stabilize. Thanks for the question. I think we've already started seeing the stabilization.
Speaker 5: at your cost. So can you quantify how much were you expecting to spend in 2023 on new game launches? And does that, you know, with the suspension of new game launches? Does that money just go right to savings or are you reallocating those dollars? So that's all reflected on guidance that we provided in terms of our guidance range for this year. So it's baked in. And so...
We don't have that new game spending, but obviously there's no revenue associated with those titles either, but both are baked into the top line and bottom line guidance for next year.
that new game spending, but obviously there's no revenue associated with those titles either, but both are baked into the top line and bottom line guidance for next year.
Thank you. And as a reminder, to ask a question, you'll need to press star 1-1 on your telephone. Our next question comes from Clark Lampon with VTIG. You may proceed. Hey guys, good morning. Craig, I know you don't guide specifically to quarters, but I'm curious whether you could help us with directional assumptions. It sounds like base upon comments that you made so far. Maybe we should expect a more stable, I guess, first half and greater back half sequential improvement is that right? And as it relates to the end of your workforce adjustments that you guys are...
that you made in December . I assume we'll see the full impact of that in Q1. Should we expect relatively flat expenses from there forward? Thank you. Sure. So in terms of seasonality, the only consistent trend is that summer months are seasonally weak relative to the rest of the year. I don't think there's any other specific guidance we'll kind of provide in terms of quarter to quarter. And then in terms of cost savings initiatives, the majority of that will be realized starting in Q1. So we'll see that going forward. And obviously there's a focus throughout the company on cost management. Thank you. And that concludes the Q&A session. And this concludes today's conference call. Thank you for your time. No participating, you may now disconnect. Thank you.
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