Q3 2024 Playtika Holding Corp Earnings Call

also bring further momentum to our business by empowering SuperPlay to continue the innovation work while leveraging our skill and resource. We aim to maximize the potential of their games and enhance our market leadership.

These acquisitions, when finalized, will demonstrate our continued commitment to building a diverse and successful portfolio of market-leading franchises.

We're excited about the future game pipeline at SuperPlay and what this can mean for our players and the shareholders.

Thank you for the continued support. I will hand over to Craig for a more detailed review of our performance this past quarter.

Thank you, Robert, and good morning, everyone.

Craig: Following on Robert's comments, I want to take a moment to emphasize how the SuperPlay acquisition aligns with our broader financial strategy.

Craig: Our focus on generating sustainable free cash flows allows us to support our capital allocation strategy, including M&A and returning capital to shareholders.

Craig: The proposed acquisition of SuperPlay is a perfect example of our disciplined approach.

We have structured this transaction with a balanced mix of upfront payment, as well as revenue and EBITDA performance-based earnouts, which helps align incentives and ensures we maintain financial flexibility.

Craig: This structure not only enables us to limit downside risk, but also aligns our goal to reignite revenue and credit adjusted EBITDA growth while driving long-term value creation.

Craig: Superplay continued its impressive performance in the third quarter as Consolidated Revenues grew double digits sequentially, and the studio had another record month in September, hosting all-time highs of gross revenue per day.

Craig: While the robust performance of Super Play highlights the strength and importance of our M&A strategy, it is equally important to recognize the continued contributions of the assets we acquired last year.

Governor of Poker 3 continues to show growth potential and I'm pleased to report that this studio has grown sequentially every quarter since our acquisition.

Animals and Coins delivered record-breaking performance in Q3, marking a significant turnaround after the economy challenges we faced in Q2.

The game economy adjustments, combined with our strategic decision to restructurally earn out by lowering the maximum cap and spending incremental marketing dollars, have driven this studio's success.

As a result, Animals & Coins achieved all-time high revenues with strong month-over-month growth throughout the quarter. This momentum underscores the strength of the studio and validates the changes we made to position Animals & Coins for sustained, long-term success.

Craig: While executing on sustainable and value-enhancing M&A remains a priority, we are equally focused on managing liquidity, leverage, and our capital structure.

Craig: We will continue to proactively manage our capital allocation to support growth opportunities while maintaining a strong and stable financial foundation.

Our approach is built to ensure that we can execute our strategy without compromising our commitment to financial health.

Craig: We believe this disciplined approach will allow us to successfully support both organic growth and potential future acquisitions.

Craig: In summary, we are excited about the potential the Super Play acquisition brings and confident in our ability to enhance our growth profile, all while maintaining a firm focus on financial discipline. With that, let us dive into our Q3 financial performance.

For the quarter, we generated $620.8 million of revenue, down 1% sequentially, and down 1.5% year-over-year.

Credit Adjusted EBITDA margins improved over Q2, as we generated credit adjusted EBITDA of $197.2 million, up 3.2% sequentially and down 4.1% year-over-year.

Craig: Net income was $39.3 million, down 54.6% sequentially, and up 3.7% year-over-year.

Craig: Our direct-to-consumer business continues to outperform the overall business as we generated $174.4 million, which was up 0.4% sequentially and up 8.3% year-over-year.

And I'll tell you something.

Turning now to our business results from the quarter.

Craig: Revenue across our top three games was up 1.1 percent sequentially and down 0.8 percent year-over-year.

Craig: Bingo Blitz revenue was $159.9 million, up 2.7% sequentially, and up 6.8% year-over-year.

Bingo continued its strong execution of its direct-to-consumer business in the quarter, helping drive DTC revenue to a record high. In addition, Bingo achieved its highest revenue month in history in July.

Craig: Solitaire grant harvest revenue was $79 million, up 6.5% sequentially, and down 0.2% year-over-year. We are optimistic about the roadmap going into next year, as Solitaire continues to regain its footing and drive incremental success.

Craig: Thottamania revenue was $128.7 million, down 3.8% sequentially, and down 9.3% year-over-year.

Craig: While we increased our user acquisition spend for Slotomania this year, Q3 results did not meet our expectations.

Craig: Moving forward, we are realigning our strategic focus in the studio, placing a greater emphasis on the product and feature roadmap to drive a meaningful increase in paying users.

Craig: This shift includes the introduction of historic IP, such as Cleopatra 2, launching in Q4 as the first in a series of leading titles under our licensing agreement with IGT.

Craig: Additionally, we are implementing key product changes, such as modifying the in-game experience for albums in Slotomania Club, which are designed to enhance engagement and monetization opportunities.

Craig: Turning now to specific line items in our P&L for the quarter.

Craig: Cost of revenue decreased by 3.3% year-over-year driven by a change in revenue mix between direct-to-consumer platforms revenue and third-party platforms revenue, as well as the decline in overall revenue.

Craig: R&D expenses declined by 2.9% year-over-year. The decline in R&D were due to extensive cost management implemented consistently throughout the year.

Craig: Sales and marketing expenses increased by 5% year-over-year. The increase in sales and marketing expenses was primarily due to the increase in performance marketing.

Craig: As discussed in our Q1 earnings call, we anticipated that sales and marketing spend would be the highest in Q1, with year-over-year growth tapering in subsequent quarters. Accordingly, sales and marketing expenses declined by 11.5% sequentially.

Craig: G&A expenses declined by three and a half percent year-over-year. The decline in G&A expenses was driven by a one-time favorable adjustment of payable contingent considerations and reduced compensation expenses from lower head count.

Craig: As of September 30th, we had approximately $1.2 billion in cash, cash equivalents, and short-term investments. This does not incorporate the contemplated upfront payment of $700 million for the Super Clay acquisition.

Craig: Looking at our operating metrics, average DPU increased 1% sequentially and 0.7% year over year to 301,000. Average DAU decreased 6.2% sequentially and 9.5% year over year to 7.6 million.

Craig: The decline in average DAU year over year was primarily due to the strategic decision to reallocate marketing dollars and R&D resources away from some of our smaller casual titles, such as Just Play 1v1.

ARPDAU increased 4.7% sequentially and up 9.9% year-over-year to $0.89.

Craig: We are adjusting our guidance for the year as follows. Revenue is now expected to range from $2.505 billion to $2.52 billion, reflecting a revised outlook.

Craig: Meanwhile, we are raising our credit adjusted EBITDA guidance to a range of $755M to $765M. Finally, we are lowering our capital expenditure guidance to $90M as we remain focused on maximizing free cash flow.

Craig: Our guidance does not incorporate the impact of the Super Clay acquisition, as the acquisition is still pending and we expect to close later this quarter.

With that, we'd be happy to take your questions.

Speaker Change: And our first question will come from the line of Chris Scholl with UBS. Your line is open.

[inaudible]

Chris Scholl: Great, thank you. Craig, just taking the midpoint of your full year guidance, I believe implies a higher revenue decline, but improvement on EBITDA and 4Q. Can you help us think through the drivers there? And when you announced the Superplay deal, you mentioned coming back to the market with capital allocation and future M&A plans. Any updated thoughts you can provide at this stage? Thank you.

Speaker Change: Sure, thank you for the question. So I'll start with the second part first

Craig: After our Q4 earnings post the closing of the Superplay transaction, we will update both on...

discuss our capital allocation framework as it relates to M&A.

Craig: as well. In terms of this year, obviously, you know, over-performing.

Craig: in terms of raising the guidance for EBITDA based on cost management and being selective on marketing investments.

to the highest ROI opportunities.

When you look at top line

a lot of mania and

underperformed relative to expectations as we started the quarter.

to help dictate lower guidance for the quarter.

Speaker Change: Great, thank you. If I can just fit in one more, I believe you mentioned a new product and feature roadmap for Slotomania. Just how are you thinking about the timeline for stabilization here and any shifts in competitive dynamics you would call out?

Craig: Hi, how are you? It's Robert. So regarding Slotomania, as we spoke last quarter, we have very strong plans regarding content, especially with the deal that we did with IGT. We're going to start launching the new content.

Craig: in the end of this year already, and together with the product changing we believe that next year is going to be a very interesting and promising year to Slotomanics.

Thank you.

Great. Thank you very much.

Thank you. One moment for our next question.

Craig: And that will come from the line of Drew Crum with Stiefel. Your line is open.

drew Crum: Okay, thanks you guys good morning, you know as it relates to your revenue mix the DTC piece has continued to increase Sequentially as a percentage of the total, you know, I know you haven't

Craig: updated that 30% target, but is there anything forthcoming that would cause a material change in the mix? And then I have a quick follow-up.

No, I think we have...

Craig: continued execution as it relates to new title launches, so in terms of the execution we have in June's Journey, the execution that we have in Salter Grand Harvest.

Craig: continues to help there, but nothing outside of the performance that you've seen in the last few quarters. It's pretty consistent and steady. Post Super Play acquisition, we'll have to reassess their roadmap and opportunities to integrate DTC there as well.

Speaker Change: And then just on the casual side of your portfolio, you mentioned the record performance for animals and coins and the strong performance for bingo and stabilization for solitary. If you isolate those, it looks like the revenue was weaker. And anything to call out or flag in terms of what drove that decline?

Thank you.

Speaker Change: So I think what you're seeing is that as we continue to focus investments on our biggest titles that are number one in their respective categories, we see better performance there and some of these smaller titles

Craig: where we've taken away R&D and marketing resources from them. Those titles will continue to stagnate or decline. So we're managing the portfolio for growth from the biggest titles and more so on profitability from some of the smaller titles.

Got it. Thanks, guys.

Thank you. One moment for our next question.

Speaker Change: And that will come from the line of Eric Handler with Roth Capital. Your line is open.

Eric Handler: Good morning and thanks for the question. You guys have always done a very good job of driving higher average revenue.

Eric Handler: with daily paying users and your player conversion. But as you sort of look at your portfolio of growth titles versus sort of like your smaller titles,

Eric Handler: Ultimately you want those larger titles to keep expanding the funnel in terms of DAUs. Can you maybe talk a little bit about the dynamic that's going on like are you seeing growth in DAUs with your focus titles?

Thank you.

Speaker Change: Sure, so as we look at further diversification of the portfolio, both through, you know, future acquisitions and the acquisitions we've done over the last few years,

Speaker Change: You know, we see growth in those titles in terms of growing the user base. I think as we look at

Speaker Change: more of the legacy titles. It's more consistent with what you've seen over kind of the last eight quarters of

Eric Handler: a more consistent decline in the DAU base as we focus on higher quality customers in tier one markets. I think what you see is DPU this quarter was up both year over year and sequentially. And so that is the metric that we're that we're most focused on. But I think some of the smaller titles.

Eric Handler: like 1V1 and Redecor both had bigger declines as we pulled back on marketing dollars.

Eric Handler: from a DAU product. Those were low revenue producing titles to begin with, so it's not the same user base in terms of quality.

Great. Thanks, Craig.

Thank you. One moment for our next question.

Speaker Change: And that will come from the line of Matt Kost with Morgan Stanley. Your line is open.

Thank you everyone, have a nice weekend.

Matt Kost: But as we look at kind of the 4Q guide where revenue and EBITDA are moving in opposite directions It seems like you know, you're being a little more selective on the marketing side. I think I think you said so I guess

Speaker Change: What are you seeing there? I mean, would you look back on the marketing that you did in the first half and say, you know, it didn't pan out as well as you had hoped and so you're just, you know, really paring down as you move into the second half? Like, what is changing in that UA environment?

Thank you.

Hey, it's Neil, Playtica CMO. Thanks for the question.

Matt Kost: So, basically as we have a variety of different games, so obviously the story is different for each one of them.

Matt Kost: In H1 we tried different approach. Some of the things that we did around the offline activity didn't meet our expectation and we did shift towards performance.

Matt Kost: I think that overall in the marketing arena we see lots of things that can be beneficial for us in the future. An example for that is what we are seeing with the policy change of Google.

Matt Kost: that they announced that Google Ads will start rolling out personalized ads for social casinos. This is great news for us and an opportunity basically to put slots, poker and bingo under the same role, I would say, as casual games. So this can be beneficial for us just as an example for marketing, retargeting and also for improved algorithms that we are using with Google. So we are seeing things that can help us in the future and we're going to focus more on the performance side moving forward.

Thank you.

Speaker Change: Great, thank you. And then just on the revenue guide, should we think of Slotomania as the main driver of like the lower revenue guide or are there other big movers that you would call out?

Speaker Change: I think it's a mix of Slotomania and the smaller titles.

Got it. Okay. Thank you.

Thank you. One moment for our next question.

Speaker Change: And our next question will come from the line of Aaron Lee with Macquarie. Your line is open.

Speaker Change: Hey, good morning guys. Thanks for taking the question. I wanted to start with Superplay. Are there any opportunities for synergies or just cross-pollination of best practices or monetization between this acquisition and some of your existing titles, like maybe Board Kings or Animals and Coins?

So

Speaker Change: Of course, you know, when you look at the founders of Superplay, you know, the guys are ex-Playtika and they came from Playtika and there is a lot of, you know, look and feel in Superplay.

Speaker Change: We are not in this point of the deal and we are not speaking about synergy right now. This is not the focus of synergy.

Speaker Change: SuperPlay has their own roadmap and they're going to work independently and get to their targets. You know, always in the future things can happen, but right now there's not even conversation regarding this.

Okay, fair enough, that makes sense.

Speaker Change: As a quick follow-up, in the last quarter you mentioned a new game being developed by Wooga, Claire's Chronicles. Is that game still on track for a second quarter 25 launch? And how are you thinking about growing that and also growing June's journey?

Speaker Change: You know, is there going to be any cross-sell there, or is it really just trying to focus on growing both at the same time?

Speaker Change: So, yes, we mentioned a new game of Mooga. It's going to be launched next year. We're already doing beta tests. We're already doing some...

Speaker Change: small launches in some small places. There is no connection between this game and the roadmap of June Journey. It's a different team, it's a different target.

Speaker Change: June Journey had an amazing roadmap for next year. June Journey was growing incredibly in the last six years, one of our leading titles, and it's going to stay one of our leading titles.

Okay, thanks Robert, appreciate the call.

Thank you. One moment for our next question.

https://www.youtube.com or the link in the description below.

Speaker Change: And that will come from the line of Omar D'souka with Bank of America. Your line is open.

Hi. Thanks. Thanks a lot.

Speaker Change: We've been noticing a trend towards hybrid monetization. I just wanted to get your updated thoughts on whether you think that's a growth vertical, and if your thoughts on advertising have changed at all since the last couple of calls we've talked to you.

Thank you for watching!

Speaker Change: No, I think for the most part our portfolio is in-app purchase focused. We have titles like Animals and Coins, which has advertising.

Speaker Change: Natively built into the game as part of it from the design from the beginning some of our other titles as well, but No anticipation of shifting strategy there strategically

Okay, got it. Thanks. Appreciate it.

Speaker Change: Thank you. I'm showing no further questions in the queue at this time, so thank you all for your participation. This concludes today's program. You may now disconnect.

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