Q3 2023 Playstudios Inc Earnings Call
Greetings and welcome to the play studios third quarter 2023 earnings call.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce Samir Jain head of Treasury and Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, and thank you for joining us for place Studios third 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 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.
We will also discuss certain non-GAAP financial measures. During this call. These measures should not be considered as a substitute 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 third quarter earnings release and in our SEC filings.
With that I'll pass the call to Andrew.
Thank you Samir and welcome everyone to our third quarter 2023 earnings call.
Earlier today, we published a press release containing our financial results along with commentary for the recently completed third quarter is always our release contains considerable financial disclosures as well as our thoughts on topics. We believe are pertinent to our company.
I hope you've had a chance to read the release and the bad I'd encourage you to do yourself.
Rather than rehash, what's contained there Scott and I'll spend a few minutes highlighting some key developments and save the majority of today's time for your questions.
Adjusted EBITDA and more importantly, EBITDA margins increased meaningfully versus year ago results.
Number of initiatives contributed to this including our focus on operating efficiency and a more diversified business model that now ceased nearly 25% of our revenues coming from higher margin advertising sales.
We believe there are still more opportunities to improve our cost structure and optimize productivity, which will further improve margin gains going forward as we've discussed before our margins are a bit leaner due to our ongoing investments in new products play towards platform and other growth initiatives.
However, its our view that we can achieve margin parity with our peers as these efforts mature and contribute to our revenues.
Our play games group continues to benefit from momentum in our growth portfolio with <unk> knockdown increasing throughout the year.
Player interest in Tetris remains high with many of the key performance metrics improving steadily.
In addition to scaling our existing Texas Prime product, we continue to advance the development of our new casual titles.
With that said I'm thrilled to share that we recently executed a new agreement the Texas company extending our exclusive rights to this important intellectual property through at least August of 2029 with this renewed commitment. We can now confidently pursue a more comprehensive and long term growth strategy because its beloved gaming franchise.
We're also optimistic about other products in our girls portfolio, where early tests of new features and capabilities has been promising.
Most notable are the enhancements to some of our bromine games, which have lifted our advertising revenues and contributed to our entire network cross promotion reaffirming our initial acquisition thesis.
We plan to incorporate these changes along with our my VIP program until the full collection of bringing in products throughout the remainder of this year and there will be part of 2024 and doing so we expect the portfolio as a whole will generate higher revenues in the coming year.
We also remain committed to creating and publishing new games as a result will further diversify our portfolio expand our player network and position the company for continued growth.
Of course crafting new games is more art than science and as such the timing and ultimate success at each it's hard to predict having said that I'm happy to share that we're making solid progress with our new game initiatives and anticipate launching at least one new title within the next six to 12 months.
The trends in our core portfolio remained consistent with the broader social casino industry.
While we remain hopeful that the conditions will improve for the genre as a whole we're undertaking numerous initiatives to drive organic growth lift revenue and continue to expand margins.
The top of the list of the games, we transitioned to new operating teams as part of our restructuring back in March as a reminder, the teams overseeing these games now include key product leaders from Papa our top performing social casino title given our experience. We continue to believe that both my economic N. Las Vegas can achieve meaningful improvements in payer conversion and spend per.
Bayer.
Other initiatives focused on improving the performance of our core titles include enhancing our direct sales capabilities, new advertising products and improved capabilities with incentivize cross promotions.
Now turning to play awards, we continue to advance the technologies program features and benefits of our my VIP program and underlying platform. We're also making strides in our plan to launch our loyalty as a service solution to external partners and continue to believe loyalty will be integral to the mobile gaming industry's future. We remain enthusiastic about the ASIC yet.
Potential of this unique strategic asset and look forward to more fully realizing its value.
Before I hand, the call over to Scott to discuss our financials I wanted to reaffirm our interest and focus on M&A.
We continue to actively search for and qualify compelling opportunities that are in keeping with our overall strategy and expansion plans. We have a history of growth driven by both internally crafts games, along with acquired game assets and I expect that to continue into the foreseeable future. We've been thoughtful stewards of our capital Opportunistically accumulating our own stock while.
<unk> substantial cash reserves to enable strategic acquisitions, while the public markets will always be unpredictable, we will remain focused on optimizing the returns for our shareholders.
I'll now turn the call over to Scott to provide some additional comments Scott.
Thanks, Andrew Good afternoon, everyone.
In addition, today's press release, our Form 10-Q will be filed shortly please look to those filings for a comprehensive summary of our quarterly results.
As Andrew mentioned, we were able to generate strong adjusted EBITDA performance again this quarter. As a reminder, brand name was acquired in October of 2022, and it wasn't part of our company in the third quarter last year.
Both D R U M and you in the quarter were heavily skewed by the inclusion of <unk> fourth quarter results will be more comparable and a full annualized nation will happen in the first quarter of 2024.
Excluding <unk> organic growth in D. U N M and U was up double digit percentages versus a year ago. This growth was driven by our casual portfolio that more than offset the declines in our core social casino users, which we believe are in line with the industry.
These declines translated to lower paying users and lower GPU this quarter.
Excluding the impact of our advertising driven games, tetris, and bringing them opt out was up mid single digits growth in RPI was broad based across our social casino portfolio.
We ended the quarter with approximately $130 million in cash no borrowings and full availability of our $81 million.
We did not repurchase any shares during the quarter and can you just can continue to have $30 million remaining in our stock repurchase authorization, our broader capital allocation goals remain the same investing in our games building and scaling player words pursuing strategic and accretive M&A and investing in our public equity.
Looking ahead, we are adjusting our annual guidance given that there was only one quarter remaining in 2023.
Our adjusted EBITDA guidance increases to $60 million versus the previous range of between 55 and $60 million.
We are tightening our full year revenue guidance to be between 305 and $315 million versus prior guidance of between 305 and $325 million.
As discussed last quarter, our guidance assumes a pick up in spending to support our growth and development games as well as continued industry and economic stress.
I'll now turn the call back to Andrew for some closing remarks.
Thank you Scott and thanks to everyone participating in today's call.
While not without its challenges I'm very encouraged by the progress we've made this year and I'm quite optimistic about the many developments underway our efforts to increase profitability of working and I believe we're on a path Martin parity with our peers our.
Our growth portfolio is adding meaningfully to our total revenues.
I expect the contributions to grow into 2024 I'm also excited about new games in development and are hopeful that one or more of them will be in the marketplace in the coming year alongside these internal efforts, we continue to scour the market for acquisitions that can accelerate our growth and expand our overall opportunity.
Yeah.
Before I conclude the call and take your questions I wanted to address the ongoing conflict in Israel.
As you know we have a significant presence in the region with a number of our playmakers based in Tel Aviv.
Like the rest of the World we were horrified by the events on October seven and profoundly saddened by what's transpired since.
Well, we have comprehensive business continuity measures in place and a collection of services aimed at supporting our employees. During this turbulent and complicated time know that we will continue to do everything possible to minimize the impact to our company and safeguard our team members and their families.
And above all we hope that someday soon these cycles of violence and suffering land in a narrow tolerance justice stability will come to this beautiful and sacred land.
I'll now turn the call over to the operator to take your questions operator.
Thank you.
Ladies and gentlemen at this time well be conducting a question and answer session.
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Our first question comes from the line of Ryan signal with Craig Hallum. Please proceed with your question.
Good afternoon, Andrew or Scott.
Hey, Ryan.
I didn't.
Catch exactly give a lot of metrics what was organic revenue growth, excluding Brady I'm in the quarter.
Oh.
Organic revenue growth.
Yeah.
Give me just a second Brian.
Yes sure.
Look I can keep keep movement.
Yeah, that's okay, but the answer is it was pretty close to being flat quarter over quarter. Okay.
Sure.
Then you mentioned a focus on and you have been.
Making good progress on the margin expansion focus on getting to margin parity with peers can you do that without a reacceleration in revenue growth or do you need some of these growth initiatives to really get to get there.
Well, there's one or two things right I mean, we have a number of initiatives that are in their development stage right, where we're investing.
Stance really odd there.
That arent contributing at all to revenues so as they mature they're either going to contribute to revenues and result in that margin expansion are they're not going to work in which case, we as a company have a strategic choice to make to redeploy that capacity into new development efforts that will drive future growth or to adjust the cost structure.
Our business in order to achieve what we believe to be more mature margins.
When we kind of look at and evaluate our business and we look at the core portfolio.
We are at margin parity.
With our peers, even burdening it with the overhead more G&A and other expenses outside of that portfolio.
And so really our margins are compressed by the investments, we're making in our new development opportunities and then of course the investments we continue to make in play awards as a platform and its capabilities.
We can leverage it more fully.
As a surface beyond just supporting our own products. So.
So.
I hope that addresses your question you know, we're either going to enjoy the benefits of these investments or we're going to adjust our overall cost structure or we're going to redeploy that capacity into other future opportunities that we think are going to drive growth.
That's helpful. Yeah, I was giving out the structural margin of the business, excluding all those growth initiatives, which you answered.
My last question.
Mentioned, you've been testing the waters on external parties and partners using play Awards you mentioned in the press release from the growth drug right now I'm curious kind of how that pipeline is progressing what you're hearing and then maybe any timeline around when we might hear something more formalized.
Yeah, I mean, I think it's still premature for us to kind of speak more specifically to what the overall shape of that opportunity looks like and we've talked about our vision, which is to provide loyalty solutions to other key strategic partners or players in the industry.
We've had a number of conversations that feedback generally is pretty constructive and positive I mean, they see it as a really unique asset.
And particularly given the dynamics of the industry today and how difficult. It is to acquire players retaining them becomes all the more important.
So our loyalty program is really aimed very specifically yet.
Painting players over a longer period of time as a result, driving L. T D.
So early feedback people appreciate and see the value of it.
And we're in the early stages, just qualifying what does that mean, so how to really support a third party partner not only the underlying technology solution, but all the other services that it might provide.
So it's been super helpful because its refined our thinking.
And it's helped US understand you know how how to better approach exploiting that opportunity.
So again I would characterize the conversations as still being quite preliminary but really instructive for us.
Great. Thanks, Andrew Scott Good luck guys.
Awesome. Thanks Ryan.
As a reminder, it is star one to ask a question.
Our next question comes from the line of David Pang with Stifel. Please proceed with your question.
Hi, Thanks, everyone.
Can you talk about the puts and takes on guidance, which implies a fairly wide range and <unk> revenue and what gives you confidence in your EBITDA outlook given this revenue range.
I mean, we did tightened the they're the bandwidth of our revenue so three to five to $3 15 midpoint of three time, we felt that was just the appropriate thing given the general uncertainty that we experienced in the market.
With that I mean again, that's why we reduced it from an EBIT perspective, we've been.
We've been we've been pretty consistent with with our EBITDA.
<unk>. So we just kind of leaned in to be a single number.
We've already kind of had accounted for the additional UA that we expect to see.
Spend in the fourth quarter so.
Oh did I answer your question Yeah, Yeah.
Yeah.
Yeah.
The clarity on on EBITDA and just remember it also includes quite a bit.
On the expense side, which we do have probably a lot more control over also like the mix shifts that you can sort of see towards the casual games that trend. So there's probably a little bit more of a line of sight with that as opposed to the revenues, which are as Scott mentioned much more.
Just on how the broader economy is doing how the category is doing so that's why there's a little bit more precision than that number down in the revenues.
Got it.
And separately, how do your players engage with player awards during periods of economic weakness or uncertainty.
They become more active.
In the rewards program because.
They are playing games for free and accumulating all of these real world benefits, but they didn't get to take advantage of it. So we're in a.
Tighter more distressed economy and people are being a little more frugal.
They they take greater advantage of the program.
Right and lastly.
On the initiatives that you ran for a solitary what were some of the key learnings from that.
There's a lot of opportunities still within Solitaires again category at least with our execution of it and we think across the broader casual portfolio that we have.
So the things that we're doing that are impacting the fill rates of kind of our various impressions.
The new AD products that we're we're being very careful in how we insert them into the products are translating to revenue lift and so those you know as we prove them out in one game, we believe that that can be pulled through and extend it to the others and there's there's a whole roadmap of other features in development some of which.
Very subtle and some of which are pretty material like the introduction of the buy VIP loyalty program to those products. So.
And that's why we feel like it's been a great source of growth over the past couple of quarters.
We think it'll continue to be.
You'll recall too David won't when we purchased premium we talked a lot about the synergies that were available that we just weren't able to quantify at that point, though I think what youre seeing now, but there was always a plan in place, but you know.
Obviously that the restructure and like a lot of stuff that happened in the interim since we bought the company roughly a year ago. So.
So we're finally starting to address a lot of there was opportunities that we saw at the point of purchase. So we've had a long time to think about this and we're just starting to implement it now.
I would say not only think about it but we've been implementing a lot of the core infrastructure and these titles casual titles generally don't have the same kind of underlying infrastructure and back end capabilities that allow you to deliver a lot of the core aspects of our loyalty program. So there was quite a bit of.
Infrastructure work that we had to do and put in place in service are now launching the might be IP program into those products and that's what's coming up here shortly.
Is that good David good.
Yes. Thank you.
Okay Awesome all right.
Our next question comes from the line of Greg gave us with Northland Securities. Please proceed with your question.
Great. Thanks, Andrew and Scott I appreciate you taking my questions.
Uh huh.
Wondering if you could speak to the timing are you know you commented on some new formats to come under the <unk> banner I Wonder if you could just speak to.
Maybe what what some of those similar games or new format would be and then kind of the timing of those launches.
Sure I mean, our vision is that we're gonna have a portfolio of tetris products.
Today, we have one of our Texas Prime product.
It's really focused on you know the players that are wanting to kind of more purist traditional players that want that basic form of Petrus.
We've actually introduced some features that I think make even even the basic game play kind of unique and different.
And we're seeing how that translates to both scaling our audience and the performance that we're seeing out of that product.
We intend to then complement that game with several other Texas products each of which is a bit more casual in its nature.
And so as we shared when we first stepped into the rights Protectress and now that we have this longer term relationship.
Our belief is that there's an execution of tetris that will make it a bit more approachable and appeal to the more traditional mobile.
Casual puzzle game audience.
And that if we can arrive at a solution that appeals to that audience will then there's the opportunity to.
Scale up of production there.
Be a perfect complement to the Texas Prime product so.
We have a couple of different game teams that are actively advancing.
I would characterize as more casual version of Tetris game.
And then it is our intention to craft.
Our version of Tetris that even more than fine.
Really appeals to the purest that delivers the traditional purest form of Tetra for.
For those people that that's what they want to engage with in place they'll get it well of course complemented with some of the other aspects of our value proposition might play awards, but.
We have a vision, where we can see a world.
12 to 18 months from now where we have a portfolio of products from the classic Tetris game to these casual alternatives that are rich with meta features on the mechanics make it a bit more approachable and easier to play engage with so that's what we have in mind.
Well that's good to hear.
And I wanted to follow up on your previous comments related to your TV studio.
From I guess, a high level curious if there are any disruptions there and I asked because I know that you recently.
Transitioned a few studios there and are working on improving some games at that studio. So just curious if there is whether it's an operational or financial impact or.
Visibility is tough, but I'm curious if you are seeing disruption there.
Well.
We're certainly having to adjust to the current conditions, we don't anticipate any real meaningful adverse financial impact.
And that's because we have in place our crisis management practices that we activated.
In the case of our game portfolio.
One of the primary things is to decentralize the leadership such that each of the different products is directed and managed by people that.
While they still have a very tight connection to our core leadership team in Tel Aviv, there not as dependent on that core leadership team in Tel Aviv.
Over the last couple of years, we've invested quite a bit in development capacity and production support out of markets like downgrade, which is really a companion studio to our Tel Aviv team and in Asia, which also serves to support from a production perspective, a lot of the other.
Alex and our portfolio.
So we're really not that dependent on the production capacity that's based in Tel Aviv.
That capacity tends to be concentrated on just a few products and there are a bunch of measures as I just alluded to that we've taken to ensure that we can maintain our continuity and support each of our products without any meaningful disruption.
So you know that.
That's a fairly general description of what we put in place there's obviously beyond that.
A very comprehensive and detailed plan byproduct, where the entire teams are.
Mapped and.
There's kind of redundant capacity in other markets that we can activate in a moment's notice if needed.
And with all that said I really want to highlight.
The extraordinary resilience on the part of our team that's in Israel, They care deeply about the company.
Obviously invested deeply in the products they're attached to.
And they feel the deep sense of responsibility to kind of support to maintain the business and.
And so.
Even though there's this extraordinary event that's happened there that is.
As you can only imagine.
It should be all consuming they remain really focused and supportive of all the company's efforts and very flexible as far as adopting and supporting whatever the solutions are that we think are appropriate for an interim period of time.
So I couldnt be more proud of that team and their overall mindset and.
And of course, where we're all deeply concerned about that and wanting to do everything we can to ensure that they have the flexibility to focus on their primary responsibilities, which as you know.
Their own safety and the stability of their families and the security of their families. So.
So it's complicated, but I think that we've got all the right practices in place to ensure that we can continue to operate our business.
And as we sit here today and we look at the performance across the portfolio. It feels like we're.
We're managing pretty well so.
Yeah.
So there are no other because there are no other questions in the queue I would like to hand, it back to Mr. Pascoe for closing remarks.
Well just appreciate those of you that have dialed in thank you for your continued interest in the company.
We look forward to continuing to close out this year.
We've got some pretty meaningful improvements in our performance growth year over year, which we're excited about from an EBITDA perspective, you got a bunch of efforts that we've alluded to and touched upon that we believe are going to drive topline growth in the coming quarters.
And so we're just look forward to revisiting with you once we get on the other side of the new year.
Well, we can talk more about those things. So again, thanks for tuning in and look forward to our next call.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.
May disconnect your lines at this time and have a wonderful day.