Playtika Holding Corp.

Q2 2024 Earnings Conference Call

8/7/2024

spk06: Good day and thank you for standing by. Welcome to the Platica Q2 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Tay Lee, SVP of Corporate Finance and Investor Relations. Please go ahead.
spk09: Welcome, everyone, and thank you for joining us today for the second quarter 2024 earnings call for Platica Holdings Corp. Joining me on the call today are Robert Anticall, co-founder and CEO of Platica, and Craig Abrams, Platica'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 view for the future. We undertake no obligation to update these statements after this call. We've posted an accompanying slide deck to our investor relations website, which contains information on forward-looking statements and non-GAAP measures, and we'll also post our prepared remarks immediately following the call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I'll now turn the call over to Robert.
spk01: Good morning, and thank you, everyone, for joining our call today. As we review our second quarter results, it is important to note that this quarter aligns with our historical seasonality and the roadmaps we have set forth. While our overall revenue for the quarter reflects some roadmap challenges, we are focusing on the resilience and the potential of our top games. And our strategic initiatives aim at boosting our portfolio. Our strategic focus on our direct-to-consumer business and our disciplining approach to headcount and other operating expense categories has led to improvement in our margins on a quarter-over-quarter basis. Starting with our largest franchise titles, BingoBlitz performed solidly, with consistent performance year-over-year and a slight quarter-over-quarter decline. We observed strength in direct-to-consumer revenue, and we believe there is still upside remaining. We continue to enhance the game with new features and content to keep our players engaged and excited. Stopping the decline in Slotomania has been a major focus of the company. Our team is dedicated to bringing features and partnerships that will enrich the player experience and drive future growth. June journey experienced some feature delays in the first half, but we remain optimistic about the second half of the year as these new roadmap features are planned to launch this summer. I'm excited to announce that we plan to launch our latest new game, Claire's Chronicles, in Q2 of 2025. which is another story-driven title from our WUGA studio. Our team at WUGA is committed to delivering high-quality, engaging content that resonates with our players, and we are confident in the studio's ability to rebound and perform strongly. Additionally, I would like to highlight the performance of our recent acquisitions. Animal & Coins and Governor of Poker 3. We are pleased with the progress of both studios. Governor of Poker 3 has shown consistent growth, increasing quarter over quarter since the acquisition. We continue to invest for growth in Animal & Coins, and we are optimistic about the potential. We're actively looking for opportunities to broaden our game offering and to improve our market position. Our focus is to find acquisitions that complement our existing games and drive long-term value. We are taking strategic steps to ensure sustained growth and profitability. We remain committed to delivering value to our players and shareholders, and our focus on execution remains strong. We are confident in our path forward, and we believe that our strategic initiative will position us for success in the coming quarter. Thank you for your continued support. I will hand over to Craig for a more detailed review for our performance this past quarter.
spk10: Thank you, Robert, and good morning, everyone. Before we dive into the financial results, I would like to provide further insights into some of our recent initiatives in Slotomania, our oldest and one of our largest games. Third-party research consistently positions Slotomania as the number one grossing social casino themed game in the industry. However, we have faced challenges in recent years as we have lost market share in a highly competitive category. To counter this decline, we have increased our performance marketing spend and we structured our executive leadership team to provide more direct CEO oversight. As part of our ongoing initiatives, I am pleased to announce a new licensing deal with IGT. This agreement will allow us to integrate compelling real-world content into our slot-themed games, enhancing our content portfolio across Slotomania, House of Fun, and Caesars Casino. These strategic moves reflect our commitment to stabilizing and growing Slotomania, as well as supporting our other slot-themed franchises. next i would like to address the performance of our acquired titles from last year governor poker 3 continues to perform in line with our expectations and we are pleased with the performance from the game we experienced some game economy challenges in animals and coins in the second quarter which has since been corrected we are pleased to see positive month-over-month trends within the quarter and this positive momentum has continued into q3 To best position the studio for long-term growth, we amended the terms of the earn-out to spend incremental marketing dollars this year on the game, while lowering the maximum cap of the earn-out. Turning to our financial results. For the quarter, we generated $627 million of revenue, down 3.7% sequentially and 2.5% year-over-year. The sequential decline in sales and marketing spend, as well as the growth of our direct consumer business, had a positive impact on credit adjusted EBITDA margins this past quarter as we generated credit adjusted EBITDA of $191 million, up 2.9% sequentially, and down 11.2% year-over-year. Net income was $86.6 million, up 63.4% sequentially, and 14.4% year-over-year. We are pleased with the continued strength in our direct-to-consumer platforms as we generated $173.7 million, up 1.3% sequentially, and 5.1% year-over-year. DTC growth this past quarter was led by Bingo Blitz, and we expect to see ramp-up from June's journey in Solitaire Grant Harvest in the second half of the year. Turning now to our business results from the quarter. Revenue across our casual games declined 4.3% sequentially, and 1.7% year-over-year. Bingo Blitz revenue was $155.7 million, down 1.2% sequentially and 0.4% year-over-year. Our direct consumer revenue from Bingo Blitz once again grew double digits year-over-year. As the number one bingo game in the world, we strongly believe in the growth potential for this industry-leading franchise. June's Journey revenue was $74.6 million, down 2.6% sequentially and up 1.9% year-over-year. June's journey of revenue performance in the last few quarters has been negatively impacted by some challenges the studio faced with future development timelines, which pushed out future launches and directly impacted revenue performance. The studio is on track for its second half roadmap, and we remain optimistic about the outlook for the rest of the year for this title. Our social casino team games declined 2.9% sequentially and 3.4% year over year. Slotomania revenue was $133.8 million, down 1.2% sequentially, and 7.5% year-over-year. We are focused on reengaging dormant players through targeted initiatives and are also pursuing strategic opportunities, such as our new licensing agreement. Turning now to specific line items in our P&L for the second quarter. Cost of revenue decreased 5.7% year-over-year, driven by a change in revenue mix between direct-to-consumer platforms revenue, and third-party platforms revenue, as well as decline in overall revenue. R&D increased slightly by 0.3% year-over-year. Sales and marketing increased by 20% year-over-year. The increase in sales and marketing expenses was primarily due to the increase in performance marketing spend this year. Majority of the growth in sales and marketing spend year-over-year was related to our newly acquired studios and incremental spend in our largest titles, such as Bingo Blitz and Slotomania. On a sequential basis, sales and marketing expenses declined by 11%. G&A expenses declined by 35.1% year-over-year. The decline in G&A expenses were due to lower accrued expenses related to our long-term cash compensation program and a favorable adjustment of payable contingent considerations. As of June 30th, we had approximately $1.1 billion in cash, cash equivalents, and short-term investments. Looking at our operating metrics, average DPU declined 3.6% sequentially and 2.9% year-over-year to $298,000. Average DAU decreased 8% sequentially and 5.8% year-over-year to $8.1 million. ARPDAU increased 4.9% sequentially and 2.4% year-over-year to $0.85. Finally, we expect revenue to be within the bottom end of the range for revenue guidance and middle of the range for credit adjusted EBITDA guidance. We are revising our capital expenditure range to $95 million to $100 million for the year.
spk03: With that, we'd be happy to take your questions.
spk06: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Colin Sebastian of Baird. Your line is now open.
spk08: Thanks, Anne. Good morning, good afternoon, everybody. Maybe just to follow up on some of the sequential declines in social casino and in games like bingo, I guess as you evaluate that performance and then obviously take a look at the marketing plan, how much of that performance overall is seasonality? How much would you say is related to macro factors or separately game-specific issues and sort of the marketing plan, if you can kind of separate it out that way? And then my follow-up question would be just in terms of new game launches, is there any sort of strategic shift at the company between allocation of capital to M&A versus funding new games, or is that still relatively consistent with the prior strategy? Thank you.
spk10: Thanks, Colin. You know, listen, as we look at the second quarter, you know, there is some seasonality if you look at prior years from Q1 to Q2. Our focus has been on our top five franchises that are number one in their respective categories. Within the quarter, you look at a title like Bingo Blitz, our largest title, that was flattish year over year, down just 0.4%. But direct-to-consumer there grew double digits year over year. We're seeing positive trends in the Q3, and so a lot of confidence in our biggest franchise. Slotomania, we've talked about, focused on stabilization there. focusing on new marketing opportunities as well as our new licensing agreement. We really believe bringing real-world slot content into that title will continue to bolster that as well, as well as other strategic initiatives we have at that studio. As we look at June's journey, Q2 was affected by some feature launches that were delayed from the first half of the year to the second half of the year, and they're also looking at ramping up their D2C business. So I think overall, we continue to focus on growing the biggest franchises and I think as we look at the new games initiatives, I'll let Robert handle that one.
spk01: Good morning, and thank you for the question. We took a few quarters ago a decision to focus more on M&A, and this is still our strategic decision. We believe in M&A. The ROI is much better for the future. However, we always said that the Google Studio is a different studio in our portfolio. It's coming with lots of innovation, a lot of creative, and we have a good opportunity to launch an amazing game, and we have really good hopes for the game. So it's not changing our strategic decision, but when we see good opportunities, we are going very strong on it. We are really optimistic about the future. Thank you.
spk06: Thank you. Our next question comes to us from Drew Crum of Stifle. Your line is now open.
spk04: Okay, thanks. Hey, guys. Good afternoon. Good morning. On the casino games, can you give us a sense as to what the timing is of integrating content or features from the IGG licensing deal? And then I guess on a related note, a competitor earlier this week suggested that the free-to-play sweepstakes category is having a negative effect on the social casino category. Could you comment on this and whether you believe it's impacted your casino titles? Thanks.
spk10: Sure. Thanks for the question, Drew. So in terms of new content, you know, we're focused getting new content live by the end of this year and into next year. And we're excited about that because it goes across Slotomania, House of Finance, users casino. So across our slot theme portfolio, you know, listen to this in terms of referencing the sweepstakes market, you know, that market's grown into a multibillion dollar market. You know, as we think about that product, it's probably closer to what a gambling product looks like than necessarily a social gaming product. So I don't necessarily see that as a substitute, but it's hard to say any market that's grown into a multi-billion dollar market that's adjacent to us hasn't had some impact on the market.
spk04: Got it. Okay. And then Craig, you mentioned the majority of the uptick in performance marketing spend was related to the recently acquired studios. And I think last quarter, you suggested that you expected the year-on-year increase to moderate as the year progressed. We obviously saw that in 2Q. Is that still your expectation as you move into the second half through the balance of this year? Thanks.
spk10: Yeah, that is the expectation.
spk04: Got it. Thanks, guys.
spk06: Thank you. One moment for our next question. Our next question comes from Aaron Lee of Macquarie. Your line is now open.
spk03: Hey, good morning. Thanks for taking my question. Can you touch on your M&A pipeline and how that's evolved, you know, where seller expectations are now versus maybe a year or two ago and what opportunities you're seeing out there in the market? Thank you.
spk10: Sure. I don't think anything has changed from what we talked about last quarter in terms of our M&A strategy. We continue to see ourselves as a consolidator in the industry. Very well positioned with our liquidity on our balance sheet. You know, I still think that as we sort of look at ourselves and our execution on the M&A front, you know, the years 23 through 25 are really going to be the years that drive growth 26 and beyond. And for us, you know, continuing to execute and add, you know, new titles and higher growth titles into our portfolio is going to be a key part of the portfolio mix going forward.
spk03: Okay, understood. As a quick follow-up, you know, international penetration used to be talked about more as a potential growth pillar for you guys. Since you guys have a broader portfolio now and maybe AI can help with some of the localization, is this something that could still be an opportunity or just how does this rank among your priorities?
spk01: Hi, thanks for the question. So, yes, of course, opportunity. We're doing research on markets. We have two markets that were already very strong and working very hard, especially in Europe. I don't know if it's related to AI or not, but for us, as we always said, this was one of our main priorities for growing the business. Thank you.
spk03: Thanks, Craig. Thanks, Robert. Best of luck.
spk06: Thank you. One moment for our next question. Our next question comes from Lane Cruza of Goldman Sachs. Your line is now open.
spk07: Hi, guys. This is Lane. Thanks for taking the question. So with the revenues being down in the first half, can you just talk about the health of the broader market as well as what you're seeing from competitors? And then I was hoping you could speak to what you're seeing in the overall customer acquisition landscape in terms of ROI and payback period. Thanks.
spk01: So thanks for the question. First, we can say the market is challenging. We're not hiding this. We're working really, really hard, and I think we're doing well compared to the market. On the other hand, we see opportunities of games that are growing. We see opportunities of future games that are performing very well. And I can tell you honestly, from my side, I'm very optimistic about the market. I'm optimistic about the market even comparing to other platforms like PC and console. And this is something that is going to control the world, and everyone has mobile devices. It's very optimistic. On the other hand, I think M&A for us was always something that we grew our business. In the last few years, we did very few deals. Our major deal was last year ago, and we already see the fruit. So this is going to be the future growth for our company, comparing the current gains and the operation that we're doing there. Thank you.
spk00: Just to follow up on the second question about the marketing, it's . So just as a reminder, as you know, we have a big portfolio with different games from different genres, different maturity. And the way we look at our business is we look at things for the long term. We look at LTV not for the short term to optimize things. So when we look at ROI, when we look at the long term, we definitely see some opportunities. We are shifting all the time budget between different games and different sources. But as Craig mentioned at the beginning, most of the majority of the marketing activity goes to the new acquisition and the leading games, and there we still see room for improvement and for growth. Thank you.
spk07: Okay, thank you.
spk06: Thank you. One moment for our next question. Our next question comes from Omar Dusuki of Bank of America. Your line is now open.
spk12: Hi, thanks a lot. Okay, you guys have given some good color on the performance marketing so far, but I wanted to double click on that a little bit. And please help us think about where you are in terms of your performance marketing journey. I just heard your CMO say that you see some opportunities, but do you think that you're going to continue to ramp up the amount of spend in performance marketing you know, compared to where you've been in the first half, you know, as the rest of the year goes on and into 2025, you know, is performance marketing, do you think, going to become a permanently larger percent of your marketing budget? And so those are two questions. And then finally, the ad tech environment is very dynamic. Improvements happen all the time. you know, is there something that's happening in the environment in the ad tech ecosystem that is compelling this? Thank you.
spk00: So, it's Nir again. Thanks for the question. It's important to understand that, you know, this is a super dynamic landscape. So, of course, we are looking at everything around ad tech and different solutions, goes with different AI solutions and other things that we see from measurement point of view. But the industry is super dynamic. So at the end of the day, what we're always looking for, we're always looking for opportunities. Sometimes you have new channels that are growing, and that's when I say the opportunity. Sometimes we see a new channel and we see opportunity and we go deep on that section. But we have a very diverse portfolio. Obviously, this is not the case with all of our games, and we always try to optimize and shift budget to areas that we see growth. Just as an example, But Craig also mentioned about Bingo Blitz and things like that. We keep increasing the marketing there, and we are trying to optimize things and to improve results. So, yes, we still see opportunity, but obviously this is a very dynamic landscape, so we cannot identify exactly how the next year will look like right now.
spk12: Thanks. I appreciate the answer.
spk06: Thank you. One moment for our next question. Our next question comes from Eric Handler of Roth Capital. Your line is now open.
spk02: Good morning, and thanks for the question. Craig, I wonder if you could just quantify how much of the G&A decline was one time, and what does that line item look like going forward?
spk10: Yeah, so I think as we look at G&A, it's something we've been managing as we look at our cost structure over the last kind of 24 months. As we look at it going forward, obviously, it's something where, you know, we're looking to keep that as stable as we can in light of the overall market environment. So I think any adjustments to that you may see are probably one time in nature, and we can dig into it further if needed.
spk02: Okay. Thanks. And then with regards to solitary grant harvest, I mean, that had a great couple-year run. peaked out around $85, $86 billion. It's now, I'm assuming it came in below June's journey. So if you could talk about maybe what's been happening with the decline in that game and what you're doing to sort of get that back on track.
spk10: Sure. So I think that as with all games, um, you know, there's volatility quarter to quarter, um, you need to look at long-term trending and, you know, it's one of our most successful acquisitions. If you look at, you know, the growth, um, over the last, um, three or four years since we, since we acquired it. So I think as we look at, as games get more mature and as we continue to invest and work on the roadmap, um, you know, you expect to see some volatility quarter to quarter. We're looking forward to investing into DDC there and other new product features going forward, and that continues to be one of our top titles that we're going to invest in.
spk02: Thank you.
spk06: Thank you. One moment for our next question. Our next question comes from Clark Lampin of BTIG. Your line is now open.
spk05: Hey, good morning, everybody. Thanks for taking the question. Craig, I just wanted to know, as we think about sort of progress with DTC launches, I understand that you're still in the process of establishing both Junes and Solitaire in that environment, but you are also approaching, you know, we're getting close to that sort of 30% target you've established previously for mix. Is it realistic to assume that now either sort of the base or maybe bull case for DTC mix should be higher? And if so, is there a new target that you're comfortable sharing with us?
spk10: Thanks for the question, Clark. You know, it continues to be an area of focus for us on execution. We're not changing our target at this time. But obviously, DTC is a differentiator for us. It really helps differentiate as well our M&A strategy in terms of a tool that we can use for acquired titles as well as pitching studios as to how we can help them further enhance their business. And so I think as we have updates on our roadmap there and execute, we'll update the market accordingly.
spk05: If I may also, you mentioned, I think, as one of the bullets in the presentation deck, an IGP partnership. I don't think that's come up on the call thus far, so I was hoping maybe you could provide a little bit more detail around sort of the content, when that might be released and playable, and is this something also that you're targeting for sort of strictly the mobile environment, or could this be sort of both mobile and browser down the road?
spk10: Sure. So this is a licensing agreement that we recently signed with IGT to help bring their real-world content into our top slot-themed games, both Slotomania, Caesars Casino, and House of Fun, all going to have access to their content. We're looking to go live with that towards the end of this year and into next year. So excited about that. the opportunity to further bolster those games with that content. And once it's in those games, it would be in those games cross-platform across all platforms those games exist on today.
spk05: Thank you.
spk06: Thank you. One moment for our next question. Our next question comes from Matthew Kost of MS. Your line is now open. Hi.
spk13: Good morning, everyone. Thanks for taking the questions. Maybe just starting with Slotomania. As you mentioned in the prepared remarks, it's been a challenging couple of years for the franchise. I guess when you think about your expectations for Slotomania in the second half of this year, are the marketing changes that you're making and the IGT deal, are those enough, you think, to get the game to a point where you can stabilize it? I guess what are your expectations from here to the end of the year given those new initiatives? And then I have one follow-up. Thank you.
spk10: Yeah, absolutely. Our focus has been on stabilizing that product and investing in it. I think as we look at other strategic partnerships and other opportunities to bring great content and increase the competitiveness of that game in a category, as well as bolster it with further marketing, hopefully sets that up for success. It still is the number one game in the category. And we're obviously spending time and effort to improve the product and bring a better entertainment experience for our consumer.
spk13: Great, thank you. And then on the new title from Wooga that's coming out, I think it was 2Q next year, I guess any way to think about your expectations or is it going to be comparable to June's Journey or anything else in the portfolio in the bull case if it's a success? How should we size the potential for that title?
spk10: Sure. So it's, you know, they are best known for story driven games. That's where the studio has excelled. And here's another opportunity to bring another story driven game to the marketplace. And so, you know, more details to come in the future. Obviously, this is just one of the preview it with the market. And as that game gets into soft launch and relaunch, we'll we'll update accordingly. Thank you.
spk06: Thank you. One moment for our next question. Our next question comes from Christopher Scholl of UBS. Your line is now open.
spk11: Great. Thank you. Earlier this year, you had streamlined the management structure and you pushed marketing strategies back to the studios. Any early learnings you can share from this shift? And then maybe just taking a step back, there's been a debate about how much of the mobile market pullback in recent years has been due to competition, macro. or issues related to targeting, what do you believe has been the biggest factor, and how does that inform your outlook for the industry in the second half and in 2025? Thank you.
spk01: So, thanks for the question. We started the change two, three months ago. This is a very big change after working differently for eight years. It's really very early to say, okay, we see an impact. We see something. The only thing that we can see immediately, it's a different strategic between the games. They're thinking differently. It's a very big advantage for us. Now the company, we can do many things, different things with many games. So to tell you that I see right now something moving, it's really early, but I'm very optimistic about it. And I see a change of behavior in the company. What was the second question regarding the market in the last few years? Can you repeat it?
spk11: Yes, when you look at the market performance in the past few years, how much of this do you think has related to macro competition or targeting issues? And how are you thinking about the shape of the market's recovery here in the second half in 2025?
spk01: First is a tough question about 2025. I think in the last few years, we see the market become a mature market. We see the same players. We don't see you change in the top-grossing games in the U.S. or other places. We don't see new players coming. It's become a tough market. So now, when you look very carefully at the studios, the advantage will be for companies that know understanding operation. This is like the second phase of the mobile industry, understanding operations, marketing, understanding how to retain the community. So for us, again, I can speak a little bit more about Platica and the sense of the market. This is the target. This is what we are doing very well. This was always our advantage, and I'm a big believer in 25. Thank you. Thank you.
spk06: Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Disclaimer

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