Q2 2023 Playstudios Inc Earnings Call
[music].
Good afternoon, everyone and welcome to the place Studios second quarter 2023 earnings call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
This conference is being recorded.
I would now like to turn the call over to Sameer J head of Investor Relations and Treasurer, Mr. James You may begin.
Thank you operator, good afternoon, and thank you for joining US replace studios second quarter 2023 earnings call. Joining me on the call today are chairman and CEO , Andrew Pascal and her 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 current expectations and build.
And are subject to risks and uncertainties that could cause actual results can differ materially.
Please refer to our SEC filings for a discussion of the risks and uncertainties that may affect our future results.
We will also 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 GAAP.
Our results are prepared in accordance with GAAP and a reconciliation to comparable GAAP measures will be provided in our second quarter earnings release and in our SEC filings.
With that I'll pass the call to Andrew.
Great. Thank you Samir and welcome to our second quarter 2023 earnings call.
Earlier today, we published a press release containing our financial results and commentary for the second quarter of fiscal year 2023.
As always our release contains considerable financial disclosures and management thoughts on topics. We believe a partner to our company I hope you've had a chance to read the release and if not would encourage you to do so.
Other than rehash, what is contained there Scott I'll spend a few minutes highlighting key developments and save the majority of today's time for your questions.
We had another strong quarter, topping analysts' forecasts and showing material gains for most of our key metrics.
Last quarter, adjusted EBITDA margins expanded meaningfully year over year as we've discussed before reaching margin parity with our peers as a primary goal of ours and something we'll continue to advance as we balance our focus on operational improvements with our ongoing investments in future growth.
I'll play games business Division continues to benefit from the momentum in our growth portfolio, while our core business is trending in line with the industry as a whole petrus.
Petrobras continues to be a standout and we remain excited about the collection of game initiatives we're pursuing.
As I've shared on past calls we continue to work diligently on optimizing the Tetris prime product, while we invest in new core casual versions of this puzzle format. In addition, we're also making progress across the remainder of our growth portfolio and remain encouraged by the potential of these games.
As far as playing warrants business Division, we continue to evolve the core technologies tools and services, which enable the growth and impact of our my VIP loyalty program.
We've also been testing the waters with external game publishers to qualify their interest in our loyalty as a service solutions.
Is that reinforced on prior calls we are the pioneers and rewarded play and remain enthusiastic about the acid yet untapped potential of this unique and valuable business opportunity. We continue to believe that the validation from third parties can unlock an entirely new dimension of value, which we don't believe it's fully reflected in our stock price today.
I'll now turn the call over to Scott to provide some additional comments Scott.
Good afternoon, everyone. In addition to today's press release, our Form 10-Q will be filed shortly as such I'll add a few comments here, but would direct you to those filings for a comprehensive summary of the second quarter's results.
Similar to our first quarter, our higher adjusted EBITDA margins versus last year were primarily the result of the addition to <unk> higher overall revenues and lower UA spend.
We do expect adjusted EBITDA margins to continue to be above prior year levels in the second half of the year.
Never we do anticipate an increase in UA spending in the second half of the year in order to support our growth portfolio and we also would expect royalties as a percentage of revenue to increase but still to be below prior year levels.
Both ku and <unk> in the quarter were heavily skewed by the inclusion of <unk>, which we purchased in October of last year <unk>.
Excluding brainy them go steer you in Mou were up double digit percentages versus a year ago, driven by the momentum of our growth portfolio.
<unk> was down due to the impact of countries. Some brainy them both of which are advertising driven games that generally reflect lower arcked al but higher margins than our in app purchase driven gains.
Adjusting for these advertising driven games art down increased by approximately 8% on a year over year basis.
Our financial position remains strong we ended the quarter with approximately 128 million in cash no borrowings and full availability of our $81 billion revolver.
We purchased $10 million of shares during the quarter and have $30 million remaining on our stock repurchase authorization.
Finally, we are increasing our 2023 adjusted EBITDA guidance to a range of $55 million to $60 million versus the previous range of $50 million to $60 million.
Our 2023 revenue guidance of $305 to $325 million remains unchanged.
The guidance assumes an uptick in spending to support our growth games and continued industry and economic stress.
I will now turn the call back to Andrew for some closing remarks.
Thank you Scott and to everyone, who has dialed in for todays call. We appreciate your interest and look forward to updating you on our progress in the coming months as always I want to close by thanking my colleagues Hello, Playmakers and partners that work tirelessly to help us advance our business through their commitment and contributions that we're able to learn adjust and grow.
I'll now turn the call over to the operator to take your questions operator.
Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you. Our first question is from Ryan <unk> with Craig Hallum Capital Group. Please proceed with your question.
Good afternoon, Andrew Scott.
Hey, Ryan how are you.
Hi, good good.
I want to start with the guidance so it implies.
The mid point that revenue growth slows margins decline, because you're going to spend more on UA I guess.
Thanks, if you spend more on UA should accelerate revenue growth. So I guess just help me reconcile kind of the mid point, so the revenue guidance and the decline in EBITDA margin.
I mean look I'll I'll offer kind of a quick reaction and certainly Scott can weigh in as well.
I think it's safe to say that.
We offered a range and we didn't tighten up the range from a revenue perspective, because as we do start to lean into and invest in.
Some of the newer products that we have.
Certainly expect to see.
Some increases in revenue, it's hard to predict at this stage. So we just felt that we would leave the band in the range of revenue guidance, where it is.
But felt a bit more comfortable tightening up that band from an EBITDA perspective.
I think your point is.
<unk>.
Generally agree with you that.
Just wanted to leave ourselves some flexibility.
Sure Thats right, yes that makes sense.
Curious how you think about.
<unk> growth versus adding new users and maybe thinking more of the core games versus the new gains youre going to launch but competitors are clearly focused on the <unk>, but how do you think about the balance between those two.
Well I mean, the ARP Tao.
You know obviously is a function of.
Audience scale and revenue so.
Uh huh.
Okay.
Products or companies are in a position where they have the benefit of being able to scale up their audience, which you know a lot. Obviously has been made at how difficult that is in the current environment.
That would be able to scale audience, an opt out at the same time, it's challenging but.
That can be achieved.
So assuming our data remains constant will then clearly there are opportunities to drive revenue by converting more of your audience and increasing the amount of value extract from your eyes. So increases in both <unk> and RP pool.
Which we focus on very intensely with our core products the more mature games that have fairly stable audiences.
So I would say going forward as we continue to lean into the new casual products in our portfolio and some of the newer products that we're gonna be launching and scaling.
Those are we're going to be increasing our audience and so those players that you convert in spend there'll be earlier in their lifecycle of spending so the RP foods from that audience tend to be a bit smaller.
Which would blend down overall RP pool and May also planned down opt out but over time, we would expect those cohorts to mature and to start monetizing much like the more mature older cohorts that we have in which case we.
We would expect to see that up down left so.
It's a bit of a tough question to answer because there's just so many factors that come into play when youre looking at are down.
But hopefully that color helps.
Yes, thanks job on the margins and execution guys. Good luck.
Thank you Ryan.
Thank you. Our next question is from.
David Karnofsky with J P. Morgan. Please proceed with your question.
Hi, Thank you I'm wondering I mean, I know this will be in the 10-Q, but can you just let us know the relative contribution in the quarter virtual currency versus advertising and then also if you could provide some incremental detail on your core social casino portfolio in the quarter you did highlight in the press release.
Focus.
Investment on micro nominee and my Vegas.
Maybe contrast, a bit what's going on there relative.
The pop slots, which you didn't mention it I'm, assuming maybe has better performance.
Yes, I mean, we don't typically breakout or speak to the specific performance of each of the products.
Just generally.
Generalize or our share of that.
Part of what precipitated the changes that we made last quarter and some of the restructuring that we did was to.
Really aligned that core leadership and talent that we have within our casino genre.
Those two core franchises to kind of reset them.
Like theirs.
Still unrealized potential with those products and so we went through and conducted those changes and transitions through the last quarter.
Just concluded and they are still ongoing and we are encouraged and feel like there's an opportunity first time lock that value as we advance through this quarter into the fourth.
So that's kind of the color or commentary on both my Vegas economy, specifically comp.
He has been kind of more of a standout performer within the casino portfolio for us in terms of its scale and its.
Capacity to convert and monetize its audience.
So we look to it and to the teams that have managed it to really help inform how it is that we approach improving the execution and performance at both my Vegas My economic and so those are those are some of the fundamental reasons why we ended up realizing in moving those products. There is also obviously a pretty meaningful.
Hum improvement and just the overall cost structure of those products as we made those changes.
As far as so that's it on the casino portfolio hopefully some additional detail that's helpful.
With respect to the composition of revenue in the mix between purchase and advertising I'll leave that to you Scott.
Yep.
Virtual currency was roughly 80% advertising was 18% and we had 2% of other revenue.
Thank you.
Awesome. Thank you David.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
Our next question is from David Pang with Stifel. Please proceed with your question.
Alright, thanks, guys.
Just had a question on Playa Awards I think you mentioned earlier that you had some early testing with external partners.
Was curious to hear what the early feedback has been thus far and how should we think about the potential business model for play awards as a service for external partners.
So we as I alluded to in the release, we've started to engage with select partners to just share what our intentions are and providing loyalty as a service solutions.
They are preliminary conversations.
We do it to kind of test the waters get feedback see how people react to the overall IDM proposition is incorporating loyalty into some of their core franchise products I would say overall for the select conversations that we've had people see it as a unique and interesting.
And they are curious to learn a lot more and so the learning of a lot more has to do with what does it mean in terms of the potential impact that it can have.
Their overall performance so what can and should they expect in terms of lift in some of the key metrics.
And how does that relate to the waste programs designed the mechanics within the programs that we emphasize and then they have a bunch of questions around the execution. So how much resource will it actually consumed actually integrate and then ultimately service and manage.
Over time, so that they can enjoy those benefits and then kind of SaaS.
The returns relative to the complexity and cost of implementing it. So that's exactly the conversation that we wanted to be having so we understand what the sensitivities are they obviously have a lot of our own information and data that we use to help them.
Eliminate those conversations and provide some clarity.
But I would I would characterize them as still as being very early.
<unk>.
And then as far as.
The address the questions on.
Just generally the nature of the conversations as for the commercial model.
Where we have a bunch of different alternatives and ideas that.
We're also starting to socialize.
Ways for us to monetize and extract value out of our whole loyalty proposition given that it's a marketplace.
To respond should theres three different parties that benefit from it there is not only the players obviously that are enjoying these benefits, but there is doom makers and publishers on one side of the market in terms of the rewards partners and providers that really leverage it as a channel to go and acquire new consumers or reactivate dormant ones are really leveraging.
Get better yield out of whatever inventory they have.
So we've engaged in and had conversations about different pricing models, but it's really way too early for us to <unk>.
<unk> on any one.
But as we do when we get a bit more clarity, we're happy to share what our thinking is.
Yeah that was.
Helpful. And then just as a follow up to your.
And your comments on my Vegas in my <unk>.
Wondering what kind of changes that are being implemented or being expected to be implemented in game specific specifically for those two games.
So they are a bit different.
My biggest product, it's overall position as it is.
A very easy and accessible.
And engaging product.
In terms of its presentation and creative direction and the types of games that we craft for it.
Whereas konami is really for more of the casino slot purists.
Those players that really enjoy and traditional play slot machines and casinos and so their expectations from the product is very different and so the things that we need to do to optimize each of them are.
Different.
In the case of my Vegas, we see an opportunity to convert more of the audience.
And then drive up our <unk> when we look at that.
The met the methods with which we do that.
And our <unk> product in some of our other products are successful.
It calls for some economy adjustments.
Which are rather complicated.
The economy's referred to and the way, we manage the delivery and how we inject kind of a free currency into the cycle, the players' experience versus where we introduce friction and actually drain that currency from the economy, So the rate and pace with which we do those things and how that is balanced.
It's something that we're revisiting actually in both of those products, but probably more so my Vegas.
And then how we go about segmenting, our audience and then adjusting and tailoring both the complexity and difficulty in game experience and how it is that we pulled out.
Promoting different offers.
And how those offers a price in light of what we know about the players.
Extrication that we employ in doing that is something that we're advancing in evolving.
And so we believe that there is an opportunity for us to convert more players to payers and drive up the <unk> in the case of my Vegas.
In our commodity products.
We think that there's also an opportunity to convert more of our audience, but even though we have fairly healthy RP proves with that product when compared to the other gaming social games.
Or are based upon the existing real world Casino content, we believe we like the market. So.
We think the methods that we employ in order to encourage and motivate our players that are paying to actually spend a bit more we think there's headroom there.
So and again it comes down to how the features are all integrated and balanced and the adjustments you are making your economy and then and then the sophistication in your segmentation in a way that you leverage it.
Both dialing in the difficulty of the game and all of the different types of offers you're going to extend in order to drive and promote more spending.
Those are things that both teams are pretty intensely focused on.
Great. Thanks.
Yeah. Thank you David.
Thank you. Our next question is from Greg Gibbons with Northland Securities. Please proceed with your question.
Hey, good afternoon, thanks for taking the questions.
Regarding your intention to increase user acquisition spend.
In the coming quarters.
What's kind of the reasoning there or are you expecting maybe to see.
<unk> payback on that spend going forward or is it specifically to target certain games like Tetris, just wanted to dive in a little bit deeper on the strategy there.
Yes, it really has more to do with the portfolio of growth growth and new development products that we have.
We have right now.
Four five different new products that are in development.
That are in the markets in varying stages, where were qualifying them.
And so as they as the core metrics get to a place where they start to warrant and justify our spending a bit more for ultimately getting into a more general launch of those products more global launch will require a lot more resource in UA allocation.
And then within our growth portfolio of the same is true the growth products all tend to be earlier in their lifecycle.
We feel that they have the capacity to grow in terms of audience revenue and profit contribution and so.
Lean into those as they continue to mature and evolve.
And of course in both cases.
We're holding all of our products, both both categories, but all the games within those categories, we hold to that.
Very specific in tight performance metrics and around.
Payback horizons and returns on Ad spend.
And so I would say across our portfolio.
The performance of our current UA investments is really solid.
And so as again some of these growth products in the development stage products mature and warranty and justify.
Investing more in them and scaling and growing them, we will and so we're certainly hoping and anticipating that that would be true as we kind of advance and move into the fourth quarter of this year.
Great that's helpful. Andrew.
I wanted to follow up on that on the restructuring.
Maybe regarding the cost savings that youre seeing as a result of that.
How much was reflected in Q2 I know it was a couple of quarter long process.
Should we see additional improvement maybe in margins as a result.
Of that in Q3 or would you say most of the cost savings are kind of fully reflected at this point.
There is still some benefits to be realized in Q3, I'll, let scott speak to it.
But we instituted the changes really in Q2, and we had all kinds of kind of transition plans and programs and retention plans, where we carried some of the expense.
<unk>.
And through the second quarter, but Scott you want to shed some light on that topic.
Sure.
Andrew is right I mean really there wasn't too much savings in Q2.
Maybe a little bit towards the tail end, we expect to see.
The bulk of the savings that we will experience in the.
Middle of Q3, as we're exiting some leases and other things like that.
So, yes, you'll see a little bit more.
Savings I am not being terribly specific but but.
There will be some in Q3 or in Q4.
Q4 will have realized all of them basically on a normalized basis.
Okay great.
Yes, that's helpful. Just trying to get a sense of the timing there.
I think lastly from me and I know you already spoke a lot about the early efforts and the improvements that youre working on for Mike Inami in my Vegas loss, but I guess I just wanted to follow up regarding like a rough timeline on that like when would we start to see those.
I guess those efforts.
You mentioned the economy adjustments within the games.
Then like targeted segmenting, when we maybe see those improvements take place.
Do you have kind of a rough timeline.
Yeah, I mean, there is there it isn't like there's a big body of work that once it's completed then there's kind of this key moment, where all of a sudden you start to enjoy all of those benefits.
There is a very comprehensive set of adjustments and a roadmap.
That will extend.
And beyond this calendar year for those products.
I didn't mean to imply we don't do a lot of those things we're constantly looking at refining and tweaking the economies in our segmentation practices, but.
To do that would be more fundamental.
Changes too.
The tools that we use and the applications are themselves and the degree to which they can accommodate the kind of flexibility that we know we need more of in our products that tend to be more foundational and and requires a bit more work and time.
And it's the kind of work wear.
Youre really I referred to it as being foundational it's kind of like you're jacking up the building in addressing some of the core infrastructure.
And so until you get into it particularly in light of the fact that.
These are fairly.
A long standing products.
Entirely sure that some of the issues that youre going to confront and get into.
So we expect that we're going to start to see and enjoy some of the benefits this quarter into the fourth quarter, but there's no question that work will extend on into the early part of next year.
Got it that makes sense I appreciate it guys.
Yes. Thank you.
Thank you there are no further questions at this time I'd like to hand, the floor back over to Andrew Pascal for closing comments.
Well. Thank you again, just to really appreciate everybody's time and interest in.
We just look forward to continuing to update you on our progress as we advance through the balance of the year. So thank you very much everyone.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.