Q2 2023 Playtika Holding Corp Earnings Call
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Good day, and thank you for standing by.
Welcome to play ticket Q2, 2023 earnings call.
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After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
Now I'd like to hand, the conference over to Tae Lee SVP of corporate Finance and Investor Relations. Please.
Please go ahead.
Welcome everyone and thank you for joining us today for the second quarter of 2023 earnings call for Quaker Houghton Corp. Joining me on the call today are Robert <unk> co founder and CEO of <unk> and.
And Craig Abrahams, Atk's, President and Chief Financial Officer.
I'd like to remind you that today's discussion may contain forward looking statements, including but not limited to the company's anticipated future revenue and operating performance.
These statements and other comments are not a guarantee of future performance, but rather are subject to risks and uncertainties some of which are beyond our control.
These forward looking statements apply as of today and you should not rely on them as representing our views in the future.
We undertake no obligation to update these statements after the call.
For a more complete discussion of the risks and uncertainties. Please see our filings with the SEC.
We have posted an accompanying slide deck to our Investor Relations website, and we will also post our prepared remarks immediately following the call with that I will now turn the call over to Robert.
Good morning, and thank you everyone for joining our call today.
Before we dive into business and financial results for the quarter I would like to highlight our recent announcement to acquire the governor of poker franchise.
Although he is still that we have successfully execute various acquisition that have played an important role in establishing <unk> as an industry leader in mobile gaming.
We are constantly searching for policy again franchise that we can optimize and monetize using our operation excellence and best in class live ops.
Government of polka, they will establish a franchise with a loyal player base.
Generating most of its revenue from Europe , when combined with our unique expertise in toy and game operation, we see it as a good opportunity to further expand our leadership in social poker market.
Turning to our quarterly result, this quarter, we generated net income of $75 7 million.
Adjusted EBITDA was $250 million.
Each market six 7% growth year over year.
This demonstrates our focus on running more efficiently, while continuing to invest in developing better tools and technology.
Instead, it is going to evolve and invest with EMEA and the efforts of our team.
We announced that the industry is going.
I think this AI babies towards into our studios, which should provide opportunities to support our margins in the future.
In addition, we are seeing how all internally developing tools combined with our industry leading expertise in Iraq.
New opportunities.
Work for our games, while providing a platform to support any future M&A.
I will now turn it to Greg who will walk through the financials and discuss the quarter in greater detail.
Thank you Robert.
Our performance in the quarter was consistent with our outlook from the beginning of the year, where we expected the industry to be flat to slightly down.
Throughout the quarter, we saw positive year over year revenue trends for our casualty portfolio.
Our social casino portfolio fell slightly below our expectations are.
Our casualty portfolio now represents 56, 8% of revenue a new record for the company.
Coming off a strong sequential growth to start the year, we saw normalization in Q2.
For the quarter, we generated $642 $8 million in revenue down, 2% sequentially and <unk>, 5% year over year.
Net income was $75 $7 million compared to $36 $4 million in Q2 of 2022.
Credit adjusted EBITDA was $215 million down three 5% sequentially and up six 7% year over year.
Our credit adjusted EBITDA margin was 33, 4% in the quarter compared to 33, 9% in Q1 and 35% in Q2 of 2022.
We generated record revenues of $165 $3 million from our direct to consumer platform.
Up nine 1% sequentially and seven 6% year over year.
Our direct to consumer business now makes up 25, 7% of overall revenues.
Turning now to our business results for the quarter.
Revenue across our casualty and games declined one 4% sequentially and increased three 7% year over year.
This year over year growth was driven by strength in bingo Blitz soldier Grant harvest in June journey.
<unk> revenue was $156 3 million.
Down one 8% sequentially and up six 3% year over year.
In the quarter, we saw positive results from jams and Canning features released in May.
This is a significant economy changed for the game is the focus of <unk> to generate revenue through gameplay Enhancers and accounting feature is also an example of gameplay enhancer as resonate well with our players.
As part of our global growth plans for <unk> as <unk> achieved a significant milestone by successfully launching its market penetration campaign in Germany.
The success of this launch can be attributed to its focus on in game localization and a well executed marketing initiatives featuring drew Barrymore.
<unk> is the largest title in our portfolio and the number one game in its category with a strong community of dedicated and loyal players and we are looking forward to the content release slate throughout the back half of the year.
So all of our grant harvest revenue was $81 8 million down four 2% sequentially off a record Q1 and up 26, 2% year over year.
While we experienced some normalization quarter over quarter, we saw sequential stability in the studios most loyal players.
The studio experience successful feature launches, including new seasons of my farm Chew strong Easter collection monetization and the special set campaign edition.
Shifting to our social casino themed games, social casino themed games revenue declined 3% sequentially and nine 9% year over year.
<unk> revenue was $144 7 million down one, 3% sequentially and nine 9% year over year.
We are encouraged to see spot ammonia revenue stabilizing for a third consecutive quarter.
Turning to marketing as part of our digital studio initiative. We also introduced an innovative AI based solution scaling up user acquisition for World series of poker on iOS.
This new capability using the new attribution framework of Apple's ADT and allows campaign optimization amid the challenging market environment.
After seeing strong initial success for WMA we.
We plan to rollout this new user acquisition solution to additional studios by the end of 2023.
Turning now to specific line items in our P&L for the second quarter.
Cost of revenue increased 1% year over year, and operating expenses decreased 17, 4% year over year.
Profitable performance remains a core tenet for us.
As a company, we prioritized profitability and operational efficiencies, resulting in industry, leading margins and robust free cash flow.
R&D decreased 19, 9% year over year.
The lower R&D expenses were largely driven by the reduction in force that we announced at the end of the fourth quarter as well as provisions for certain retention bonuses that we had in Q2 2022.
Sales and marketing decreased 7% year over year.
Savings in sales and marketing expenses were largely driven by the reduction of user acquisition expenses in <unk> and new games.
As we noted last quarter, we started a pullback in some of our UA spending would reoccur in the second half of 'twenty two.
G&A expenses decreased by 29, 6% year over year. This.
This is partly due to savings from the reduction in force and primarily from certain provisions for contingent consideration that we had in Q2 fiscal year 2022.
As of June 30, we had approximately $955 1 million in cash and cash equivalents.
Looking at our operational metrics average GPU declined 1% year over year to 307000.
As we continue to focus on marketing efforts in tier one markets average da declined 12, 2% year over year to $8 6 million.
Our DAU increased 12, 2% year over year to 83.
As for our financial guidance for 2023, we expect to end the year at the low end of our full year guidance on revenue and towards the higher end of our guidance for credit adjusted EBITDA.
We are revising our capital expenditures guidance and now expect capital expenditures between 101 hundred $5 million down from $115 million to $120 million previously.
In terms of the M&A landscape going forward, we are witnessing an increasingly favorable market.
With a strong track record of generating substantial free cash flow, we have the financial capacity to pursue value enhancing deals.
As Robert mentioned, we are committed to focusing on our core strengths and executing value accretive transactions that will drive long term value for our shareholders.
With that we'd be happy to take your questions.
Thank you.
We will now conduct a question answer session to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please stand by while a compile the Q&A roster.
Our first question comes from Matt cost from Morgan Stanley . Please go ahead.
Hi, everybody. Thanks for taking my question.
Maybe I'll just start kind of right, where you left off Craig on the increasingly favorable M&A market. Obviously, you executed a deal recently the first one and in some time not just for you, but kind of at the market level I guess, what is changing that's making it more favorable like why why lean in now.
And has the playbook changed at all in terms of in terms of what you are looking to target in terms of <unk>.
M&A.
So acquisitions I think this is a casino game, which I think is a little different than you've done in the past and then I have.
One follow up thank you.
Sure. Thanks, Matt I think what we're seeing is that consolidation in the industry is continuing.
We have a differentiated technology platform and live operations expertise.
It allows us to acquire established franchises and improve their operational metrics and therefore, the business and that's giving US an advantage in this type of a market.
What we're seeing is smaller studios.
Trouble scaling.
Given what's happening in the marketing landscape and that's an advantage for us.
The fact that we did a carve out also demonstrates our ability to do more technically complex transactions.
And whether it's a well established franchise to our high growth studio, we have our eyes on on a variety of opportunities and we will continue to be.
<unk> and going forward and executing.
Great and then just on the comment in the prepared remarks around the new user acquisitions and lease metric you mentioned for World series of Poker can you just go into a little bit more detail about about what youre doing differently there.
What the results of the new campaign, the new solution were and then how long it will take to rollout to the rest of the studio.
Sure Eric Archrock, our CMO will take that one.
So basically with W. P a M.
In Q2, we did cover our things also.
Launch the real game campaign and also we did the the things with the iOS. So basically what we are doing there we are leveraging our AI capabilities in our technology in order to have a prediction and to understand better the quality of the traffic that we are buying we see good results there and we plan to apply.
The activity is also to the rest of the game and the <unk>.
Coming to you.
Great. Thank you.
Thank you.
One moment for our next question.
Our next question comes from Stephen Ju from Credit Suisse. Please go ahead.
Okay. Thank you.
So I think you had.
Pretty good jump in DTC revenue.
<unk>. So can you talk about.
Which franchises.
Or new game launches that might be driving the change in mix there. Thank you.
And thanks for the question. So as we said at the beginning of the year, we're going to add another.
Games to our network and this is growing by plan the growth is coming from the our current.
Current <unk> be running the everything is by the plan as we said at the beginning this is.
Very important this is a very big advantage of play ticker.
We're a competitor goes in.
As we started this before we are focusing and we're on track.
We said in the beginning.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from Omar <unk> from.
Bank of America. Please go ahead.
Hey, guys. Thanks for taking the question. So I wanted to look beyond your DTC platform and ask you what potential.
What other what other.
Potentials, there are for gross margin expansion.
In particular, we've heard.
And the industry things like.
Subscriptions.
And mobile gaming portfolios potentially fitting into subscriptions sold by third parties.
As well as things like alternative App stores, and I was hoping you could talk a little bit about where <unk> portfolio might fit into those opportunities.
Thanks Omar for the question so.
We like we said in the last quarters.
We really believe in AI, we started progressing beyond 2016, we've been through loved around it and I know that everyone. Today speaking about it but we already started to implement our tools and you'll see it in our margins and this is where we're focusing we're giving we're building towards that will help our talent to focus at <unk>.
<unk> work and.
Supporting a supporting every activity that we're doing.
We see a very.
A good future for our emergency from speaking about the margins.
Political was always looking at the module was always looking at the EBITDA.
It built again ex accretion and stable and strong business for the future and are really happy that we see the results now are really happy to see that all the buzzword that Teva was speaking <unk> delivering.
Delivering the goods and this is only the beginning of the efficient a strong book to build better margin and better profitability to the company.
Okay. Thank you very much.
Thank you.
One moment for our next question.
Our next question comes from Colin Sebastian from Baird. Please go ahead.
Thanks. Good afternoon, just wanted to ask a follow up on the sequential drop in Gpus.
If you could talk about retention trends in games.
Maybe if there were specific decisions during the quarter made to focus more on operating efficiency and if more broadly you are seeing any changes in sort of the customer acquisition landscape obviously outside of the.
AI powered marketing that you discussed thank you.
Sure. Thanks, Colin so.
Last year Q1 to Q2, we saw a similar decline in Dps I think theres some seasonality there.
As it relates to kind of new user acquisition.
Efficiency there I think the second component, we've always talked about is GPU as well correlated with revenue and revenue normalized in Q2 after a very strong Q1.
As we looked out to this year in terms of planning I would say the biggest difference was focused on our biggest franchises.
And larger marketing budgets for titles like James journey.
<unk> is also grain harvest.
Other than that I think it is.
Really focusing on execution and as Robert said.
On efficiency and improving our margin profile.
Alright, thank you.
Thank you.
One moment for our next question.
Our next question comes from Clark Lamping from BTG. Please go ahead.
Hi, Thanks for taking the question.
Craig I've got one on development sort of following up on your commentary around AI driven marketing efficiencies. So certainly felt I think pretty encouraging relative to what you are hearing about user acquisition challenges over the last couple of quarters. If you. If you end up seeing the same benefits with other titles that you have with royalty.
Heres, a poker would that be enough for you to feel comfortable leaning back into new title development. Our launches if theres any sort of specific timeline that you can put around that I think it would be helpful. Also.
Sure. Thanks for the question card. So I think our focus really has been around using M&A as a platform to add additional IP to our to our portfolio rather than organic development.
Given kind of where we are positioned in the marketplace. Both on a balance sheet perspective, and a capability perspective, I think as Robert mentioned AI is helping us across all areas of kind of the customer lifecycle from acquiring customers to retaining customers commoditizing customers and so that benefit is going to accrue across the portfolio.
And we will see that in our organic titles in our in our portfolio plus.
And titles that we acquired so I think that continues to be the playbook for us rather than.
Organic development, although we do have some organic development.
Still within the studios, but it's not something that we feel like we can press the gas on at this moment in time.
Got it and maybe to follow up quickly on DTC I know you've talked about two new titles coming out for the balance of the year.
As we think about the portfolio a little bit more broadly are there titles of yours, where maybe a DTC offering wouldn't work for some reason in terms of player experience or is that on the table for every one of your games I guess eventually.
So.
Sure.
We always look at the maturity of the games and there were two of the players that lend against them.
The reality of course, all the Titans will look the same and we're not expecting everyone towards the same.
But for sure it will keep advantage, who will show some of the revenues will work and we are as I said in the beginning well.
On the track with that.
Projection, what we said and were feeling very strongly about it and again this is a big big advantage of <unk>.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from drew Crum from Stifel. Please go ahead.
Okay. Thanks, Hey, guys good morning.
Does your outlook for the second half imply for casino in terms of rate of decline should we see this business flatten out exiting the year and can you comment on how <unk> is tracking relative to your forecast I think theres a comment in the prepared remarks, the casino, maybe underperformed a little bit in <unk>.
<unk> any comments on slot of mania would be helpful. Thanks.
Sure. So we've seen some automakers continue to stabilize in terms of trends over the last three quarters I think as we've talked about a couple of quarters ago is a key area of focus for us.
And so I think we're pleased with that obviously.
We're making some assumptions that we can further stabilize the rest of the portfolio there.
And making appropriate investments in so.
It's an area of focus for us and just as we've done with slot M&A, we expect to do it with the rest of the portfolio as well.
Okay. Thank you.
One moment for our next question.
Our next question comes from Aaron Lee from Macquarie. Please go ahead.
Hey, good morning, Thanks for taking my question.
So you seem to have reached stabilization in some of your core games and growth in others.
And you obviously have also recently announced the acquisition of Governor of Poker.
And I believe you touched on this a bit in your comments around the M&A market, but maybe you could just give some more color on how we should be thinking about organic versus inorganic growth for 2024 and beyond.
Yes.
We're not giving long term guidance at this point I think that as we mentioned earlier theres opportunities for us.
<unk> to be opportunistic in the M&A market and so we see see that as a big opportunity as we look forward.
And governor of brokers and a good example of the ability to bolt on a well established franchise.
Patrick our live ops and technology platform to outgrow that asset.
But yes, there is no further guidance beyond 2000 nine's right.
Okay fair enough.
And then on the Governor of Poker acquisition <unk>.
Historically I think it was your marketing and distribution and live ops that where the value add that you would bring to each acquisition. So can you talk about the value add that you're bringing to governor of poker since I would imagine they would probably doing pretty well with marketing just given their prior advertising ownership.
So is it really the live ops, where you think you can be additive or is it like past acquisitions, where it's really all of the above.
So thanks for the question.
I think.
When you look at the Governor of poker.
Okay.
Early to say because we've seen it in the deal but.
I think what we are bringing here is something that most of the companies and they don't have it.
The spending going to experience a winning position in operation.
Named game that we're running today is something that you cannot even compare to what others have so when we look at this company. We sold two important <unk> first a very stable.
And the very strong James joining for many years and a big community.
And second we saw a very strong team that can help play ticker not only will this game with other stuff. So today, we're looking not only okay. What do we can bring what we can help to other companies. We are looking what we can get to learn from them. So this is a different change that.
We can move that we'll report when you can post stable businesses, we're looking for big communities, we're looking for companies.
Strong teams that can help us with the channel Jonathan this in the future.
Got it. Thank you Robert Thanks, Greg I appreciate the color.
Thank you.
One moment for our next.
Question.
Our next question comes from Eric Handler from Brock <unk>. Please go ahead.
Yes, good morning, and thanks for the question.
One can you talk a little bit more on M&A as you look at deals are you trying to fill in maybe some holes in the portfolio or just looking at games that.
You just think you can grow.
So.
We're looking for good deals.
Okay before everything we need to deal with.
Warehouse.
Thinking of looking we're looking for deals that making sense in this seasonal way a few years ago. The prices will soar I know everything is coming to normal coming to normal prices.
So I'd say the environment is more comfortable to make a deal.
This is one second.
We are looking for teams strong stable teams that can help us again as I said before.
And third.
Yes, we would we would like to build a bigger portfolio, we would like to build more games in the top 100 grossing games in the U S.
We're looking for more stability, we're looking for all pulse and.
Again, we see opportunities, we said were going to joint mandates. We're doing this we're still looking we still searching.
We are really excited about the economy the timing.
We have now and we.
We have mobile hopes for the future.
Okay, and then just as a follow up.
With governors of poker I wonder what the governors of poker provide you that you maybe didn't necessarily have with world series of poker.
First.
It should be one who they're mainly issue.
<unk> is not competing against the AWS or conduct will focus is bringing something that we've done there and slowly localization. When you look at the governments focus you have 19.
A couple of full periods very strong data that we have no doubt so together with governor <unk> will become the number one strongest.
Focused social book in the World, So philosophy with situations.
Great. Thank you.
Thank you.
One moment for our next question.
Our next question comes from May loan Quad <unk> from Cowen. Please go ahead.
Hi.
On the topic of discovery.
How big is the title and what is the expected impact of that tier of fiscal 'twenty three.
EBITDA does that is already reflected in your updated guidance.
Sure.
Given that transaction hasn't yet closed and will close later in Q3.
It's relatively immaterial to our to our guidance.
It's baked into the guidance number we gave you but it's not.
A number we're disclosing at this time.
Got it thank you.
Thank you.
One moment for our next question.
Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead.
Thank you for taking the question.
Guys talked earlier in the call about a framing of the sort of industry growth being flat to down I think one of the big Investor debates continues to be as we move further away from the pandemic as we move further away from digesting some of the privacy changes that Apple made what do you see potentially of some of the barriers to getting back to sort of more normalize.
<unk> mid single, if not low double digit type industry growth that a lot of people thought was sort of the normalized level.
For gaming growth, especially mobile looking longer term just curious your perspective on that thank you.
Sure.
Sure. So I think from if I look at it from our lens, it's really getting back to doing transactions.
Given we don't have a large organic pipeline of titles coming out every year driving growth like most of our gaming companies.
More reliant on M&A for that growth and given we were not active in the marketplace. These last few years, where valuations are.
Sky High we're now in a position to start being more opportunistic in taking advantage of the current market environment. So I think for US we will get back to growth as we continue to layer on transactions.
Sort of how we've done it over history since the company's inception, so that really for US is is how we see growth in our consolidating more mature market.
And Thats, how we plan to execute.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from Brian Fitzgerald from Wells Fargo. Please go ahead.
Thanks, guys just a quick follow up on direct to consumer really showed up this quarter anything changing in how you drive adoption of the DDC version of a game and how long it can take for that to be.
A meaningful contributor and then any updates to how youre thinking about the EU.
Digital markets Act and similar legislation and what that means for you guys.
Okay.
Okay.
Sure Robert I'll take that first question.
So I hope you hear me.
Regarding the first part of the question.
Changing what we spoke about it to see.
We are on track.
Changing anything we're willing to say again, we are really happy.
Say it again, it's our biggest advantage.
We're going to use for the future to drive more revenue to drive EBITDA to drive better margin and better profitability.
Regarding the second half a big fragrance.
Yes, nothing in terms of impact that that is going to.
The.
The fact that in terms of guidance for this year.
It's not not on our radar right now.
Okay. Thanks, Robert Thanks, Craig.
Thank you.
I am I am showing no further questions at this time. So this concludes today's conference call. Thank you for participating you may now disconnect. Thank you.
Yes.
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