Q1 2023 Playstudios Inc Earnings Call
Greetings welcome to the place studios first quarter of 2023 earnings call at this time, all participants on a listen only mode.
She didn't answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now turn the conference over to your host severe Jean head of Treasury and Investor Relations you may begin.
Thank you operator, good afternoon, and thank you for joining US replace studios first quarter of 2023 earnings call. Joining me on the call today are are chairman and CEO , Andrew Pasco and our CFO Scott Peterson before we begin let me remind you that during the course of this call. We will make forward looking statements. These statements are based on our current expectations and beliefs.
And are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of the risks and uncertainties that may affect our future results.
I would like to remind everyone that we will discuss certain non-GAAP financial measures. During this call. These measures should not be considered as a substitute for financial results prepared in accordance with gap.
<unk> are prepared in accordance with gas and the reconciliation to comparable GAAP measures will be provided in our first quarter earnings release and in our SEC filings with that I'll pass the call to Andrew.
Thank you Samir welcome to our first quarter 2023 earnings call. It's been an eventful start to the year and we're excited to share our progress place.
Play studios as a 12 year history of developing and publishing free to play mobile games since becoming an operating business, we have consistently posted year over year revenue growth.
Our success can be attributed to the quality and creative execution of our diversified portfolio of 17 games.
Wrong with our industry only loyalty program that enables players to play the games, they love, while earning real world benefits.
Are strong operating performance as a result of our unique strategy, which we believe will continue to drive our growth.
What we have achieved meaningful success, we are early in our journey and we believe there's substantial growth ahead.
We are constantly evaluating new opportunities to expand our portfolio and provide our players with the best possible leisure experiences.
Results this quarter were quite strong Ah revenue and adjusted EBITDA for the quarter were ahead of both street and company expectations as we demonstrated our capacity to balanced top line growth with margin and profit expansion. Adjusted EBITDA margins grew 940 basis points from year ago levels, and 710 basis points from last quarter.
Margins had been steadily expanding over recent quarters, and we see a clear path to achieving rates that are in line with our industry peers.
I want to emphasize that our adjusted EBITDA growth is happening in conjunction with revenue growth a rare distinction in the current environment.
We will remain focused on optimizing our performance in further improving our return on invested capital.
Margin gains are being driven by cost discipline and deficiencies.
As part of our efforts to further these goals. We recently initiated a comprehensive restructuring plan that called for the consolidation of several studios and a 10% reduction in our global head count.
We expect to see further benefits from these changes later this year.
I'd like to emphasize that we remain committed to our core portfolio and will continue to invest in these games.
Our focus on high quality content and innovative game play remains a key differentiator and.
And we're confident that are ongoing investment in these areas will continue to drive revenue growth and profitability.
Our portfolio of growth games remains a key driver of our business and we are very encouraged by the quarter's results Tetris in particular continues to perform very well growing its user base. In revenues. We are also seeing increased engagement. Following the launch of the Tetris movie on Apple plus which is introduced more players to the game.
In addition to Tetris other growth games, such as my Vegas Bingo M. G M slots and our Brainy collection are also performing well.
On the topic of future growth drivers play Awards is also made notable progress in the quarter.
We remain committed to creating a best in class loyalty platform with play awards, which we believe is a unique differentiator for our business in the quarter. We re launched a rewards partnership with Norwegian cruise line and added a new property from Gateway casinos, which helped us achieve a 2.5 per cent increase in unique rewards from the year ago P.
<unk>.
Reward purchases a quarter and were 440000 and had a retail value of over $27 million.
Looking ahead, we plan to integrate play awards into our casual game portfolio by year end, which we believe will provide exposure to 3 million daily average users we.
We see this as a springboard for a successful launch of our loyalty as a service offering.
As we've emphasized in the past our ultimate goal is to evolve play awards into a fully autonomous self sufficient and profitable business.
Given this quarter's strong results, we are raising our full year guidance.
It is worth noting that we're raising our outlook at a time when industry and economic challenges are high.
We believe that our current momentum coupled with the collection of internal initiatives underway will sustain our growth despite the secular challenges.
With that said, our longterm focus remains on executing our strategic initiatives investing in our core business and creating longterm value for our shareholders. We're confident in our ability to deliver sustainable growth and profitability and.
And we look forward to sharing our progress with you in the coming quarters.
In closing I want to reaffirm how encourage I am about our first quarter performance and excited about our future potential.
Across all of our studios teams and products, we're seeing signs of improvement and we believe we have advanced our position as the leaders and rewarded play.
Our unique business model combined with operating discipline has resulted in strong adjusted EBITDA margins that we believe can be in line with industry peers.
Lastly, we have a strong balance sheet and cash position, enabling us to pursue a range of investment opportunities, including organic product initiatives additional M&A targets, along with stock repurchases all of which will be focused on further increasing return on invested capital.
I will now hand things over to Scott for more comprehensive review of our results Scott.
Good afternoon, everyone.
During the quarter, we reported revenue of $80.1 million, a significant increase from the $70.5 million, we reported in the same quarter last year.
Important to note that even when we adjust to the impact of premium or revenue was still up year over year.
This is a testament to the company wide growth, we've experienced with particular momentum in our collection of growth games.
Justin EBITDA during the quarter was $17.8 million of 96 per cent from year ago results.
The growth was primarily driven by the addition of bringing them higher revenues overall and lower you a <unk>.
Adjusted EBITDA margins were 22.2% of 700 basis points from last quarter, and 930 basis points from a year ago.
Expense ratios were lower across the board and savings were broad based.
The higher mix of advertising revenues from bringing them in Tetris also lifted margins, which is expected to continue throughout the year.
While we were working to increase advertising and other games. We are early in the process and don't expect a material impact this year.
We remain focused on managing costs, while still investing in growth opportunities.
During the quarter, we initiated a comprehensive restructuring plan, which called for the consolidation of studios and in approximately 10 per cent net reduction in our global head count.
We expect these changes to drive further cost savings and efficiency gains over time.
D E U daily active users and M. A U monthly active users were $3.6 million and $13.1 million, respectively, which represented a 129% and 89 per cent increase over the prior year quarter how.
However, when adjusted for brain M D. A U as flat with year ago levels, while M. A U is up nearly 10%.
This performance is particularly notable given the broadly negative industry trends.
<unk> average revenue per daily active user was down due to the increasing weight of tetris, and bringing them, which are advertising driven businesses.
However, when adjusted for these games opt out increased by 11% on a year over year basis.
Games, and our growth portfolio my biggest bingo M. G M slots in Tetris also healthy <unk> gains.
Turning to play awards the platform made significant progress during the quarter was available rewards growing by 2.5% year over year to 534 unique rewards.
440000 rewards repurchase during the quarter at a retail value of over $27 million.
The program has partnered with more than 100 brands, including Intercontinental hotels, AMC theaters Royal Caribbean cruises and M. G M resorts.
Play Orange remains a key imperative of ours and we continue to be pleased with the program's performance and growth.
Our financial position remains strong with no that $127 million of cash and full availability of our $81 million revolver.
We have continued to repurchase shares under a buyback program and believed buying our stock is an excellent use of our capital.
We will continue to evaluate M&A opportunities as well as share repurchases.
As evidenced by the Tetris and brainy transactions.
Company will move quickly when the right opportunity arises.
Looking ahead, we're confident in our ability to drive continued revenue growth and improve margins where.
We are very pleased with our strong performance this quarter and remain focused on driving growth, while also managing costs and improving margins.
As Andrew mentioned earlier, we are raising our outlook for the year to reflect this enthusiasm.
We estimate that revenues will now be in the range of $305 million to $325 million up from the previous guidance of $300 million to $320 million and adjusted EBITDA will be in the range of $50 million to $60 million up from the prior guidance of $47.5 million to $52.5 million, the higher margins where.
Select efficiencies progress in new and developing games and the inclusion of brainy them for the full year.
The long term impact of the corporate restructuring is still unknown, but we remain confident it will be a driver of both growth and margin expansion.
Finally, the guidance assumes continued industry and economic stress, which we are factored into our forecast.
Now turn the call back to Andrew for some closing remarks.
Thank you Scott before we end our prepared remarks and open the call for questions I'd like to touch on a few highlights.
We had an excellent quarter with revenue and adjusted EBITDA, well above hour and street expectations. Our business is growing across the board and doing so in a more profitable way.
Ah just it EBITDA margins in the quarter expanded by over 900 basis points versus a year ago.
Our efforts around efficiencies and cost containment are working we are early in the implementation of our restructuring plan and still see numerous opportunities ahead tetris.
Tetris continues to perform strongly and is building momentum with the release of the Tetris movie at the end of March we remain enthusiastic about our entire portfolio of growth games and expect them to contribute meaningfully to our 20 twenty-three performance.
Play of words was integrated into Tetris at the end of the quarter and remains on track to be added to brand names games by year, and we remain committed to expanding the reach of play awards through third party adoption of our loyalty as a service platform on.
On the back of this momentum we are raising our 20 twenty-three guidance at the mid point of our projections year over year revenue and adjusted EBIT growth are forecasted to be 9% and 44% respectively.
These games are despite the continued economic and industry challenges.
Finally, we continued to repurchase shares under our buyback program and believe our stock is underpriced and represents tremendous value.
In closing I'd like to share that in keeping with play studios progressive and forward looking philosophy. This entire call was compiled using generative AI text to text and voice cloning tools. It's just one example that illustrates how we're taking full advantage of new technologies and finding exciting ways to apply AI practices throughout.
Our company.
With that I'll turn it over to the operator to introduce the real members of our team operator, Please open the lines.
Thank you and at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your lines and the question queue.
<unk>, if you would like to remove your question from the queue.
For participation in the speaker equipment, it may be necessary to pick up your handset before pressing the star Keith and one moment. Please while we pull for question.
And our first question comes from the line of David Hang with Stifel. Please proceed with your question.
Thanks for the question.
Hoping to hear.
Any key takeaways or or learnings from the integration of play it works to Tetris and separately to talk about the gross margin improvement that you saw on the quarter and Oh, what other drivers here and how we should think about gross margin for the remainder of the year.
Yeah. Thank you David this is Andrew.
So first of all we did the integration play awards and to Tetris towards the end of this last quarter. So middle to end of the quarter and you know across the board we saw premium for growth with Tetris, but it was attributed in our view to a number of different factors just one of them being the integration of play awards. So we're we're currently.
Actively working on Co-ops other qualify and tease me out its impact exclusive.
The premier of the movie and the just strong momentum that we were carrying organically forward with that product. So we'll we'll speak to it a bit more specifically probably on our next call as far as the gross margin improvement that's more a function of the composition of revenue and the increase in <unk>.
Advertising based revenue has an overall compliment.
Great. Thanks.
Yeah, you're welcome.
And our next question comes from the line of Aaron Lee with Mcquary. Please proceed with your question.
Hi, Thanks for taking my question and congrats on the strong quarter.
<unk> with regard to Tetris can you just give us a call around how transfer looked especially around the lift from the Tetris movie and then.
To cope cope promotional activity and how sustainable you expect that lift to be thanks.
And thanks for the question Uhm look we don't typically breakouts specific metrics by game, but what I can tell you is that you know over the course of really the past year, we've been making a lot of different optimizations and improvements to the tetris product, which it helped it grow we saw an audience growth and revenue growth.
Through the back half of last year and that momentum continued into the first quarter. There was definitely a redfin bumped that we saw as a result of the introduction of the premier of the movie on Apple T V, which was great. We did a lot of really cool cross promotion and had a ton of support which again helped us grow the audience.
And so we as we sit here today, we continue to see growth. So I can't really speak to how sustainable the added lift as a result, the movie premiere what that looks like and and how long we can or should expect that to continue.
But independent of that added lift we <unk>, we were seem pretty healthy growth. So.
And I don't see any reason why that that should change in the relative near term.
Got it. Thanks, that's very helpful. As a follow up can you just discuss the content licensing arrangement with IGT that you announced recently and some of the opportunities around that.
Yeah. So we're excited about our relationship with I G T.
Obviously real money gambling content or the games that <unk>.
Or at least our casino products the games that people are playing in traditional real world casinos, you know really well received <unk>, we've proven that out and it's been demonstrated in our cannot any product.
And so to have now access to the I T T library of content and games that we can incorporate into our products. We think is gonna be really well received by our players. So we're excited about that as a relationship and and to get the content. The games that people are finding in logging in the real world into our products that they cannot play remotely.
Perfect. Thank you very much.
Yeah.
And our next question comes from the line of Fries <unk> Craig Hallum. Please proceed with your question.
Good afternoon. This is will on for Ryan. Thanks for taking our questions just stay with you for US here. Firstly curious on your thoughts this is a bit on the IGT partnership, but curious how you guys think about new inapt content versus maybe the game Mccann.
<unk> overall.
I understand the question you know our games are really very dynamic an organic day. They continue to evolve constantly I mean every day, we are introducing new games, new features into most of our products and so.
So you know the IGT relationship and getting access to their game content allows us to further expand and broaden.
The content that we can introduce into our casino products.
And it also allows to introduce casino content that our players are familiar with from real world casinos.
So you know both are benefits as far as you know the mechanics of the games. It's certainly helpful. That these are proven games that have been very popular in the traditional real world casinos. So you know the underlying proposition at a nap and design and volatility of these experiences is very proven as are the branch so.
So to be able to take proven game content and incorporate into our products, we think spotted.
Great and then as a quick follow up in terms of a timeline for the integration of play of words, maybe throughout premium what should we I guess expect as far as cadence goes for integration.
Yeah. So you know those products.
Are there some core infrastructure that we have to put in place in order for us to deliver our our program into those products and we're doing that work now and then there's a pretty broad portfolio of them. So we've established priorities and we'll start to see the introduction other play Awards program.
Into some of those games by the end of this quarter. The early part of next.
And then once we've kind of proven it out within the initial group of pilot products. Then we'll go ahead and expand across the balance of the portfolio.
Great. Thanks, guys.
Yeah, you're welcome.
And our next question comes from the lineup Omar the silky with Bank of America. Please proceed with your question.
Hey, guys. This is Arthur <unk>, Thanks for taking my question.
So you guys mentioned that revenue is up you over here, excluding the contribution <unk> I'm just wondering if you could just comment on the trial court <unk> social casino portfolio like how that looks you know you over here. It's <unk>. They have one follow up question on <unk>. Thank you.
Yeah, I mean, a year over year trends down down modestly.
[noise] sequentially quarter over quarter fairly stable. So our understanding is it that's pretty consistent with generally where the market's trended for the the core casino products.
You said you had a follow on question.
Yeah, how does it. Thank you. So I think you guys previously put up like 22 million dollar revenue run rate forecast for premium in 2022, I'm just wondering like in terms of your insurance. If your expectation are you assuming that premium will grow verse.
That 22 like project to run right in your startup 20th.
2023 <unk>.
We do believe that there is growth potential across the premium portfolio, it's tough to predict particularly in light of just a broader macroeconomic backdrop and and really not having any more comfort or visibility obviously into how things are gonna play out here through the summer and the <unk>.
Back half of the year.
We're we're kind of comfortable with a more conservative assumption on brain and its growth.
Understood. Thank you <unk>.
Yeah. Thank you.
And we have reached D end of the question and answer session on that I'll turn the call back over to Andrew Pascal Foreclosing remark.
Yeah. Thank you I appreciate everybody tuning in and taking the time to understand our performance in this past quarter of course, if you have any further questions always feel free to reach out to us directly and we appreciate your time thanks everybody.
And this concludes today's conference and you may disconnect. Your line at this time. Thank you for your participation.
[music].