This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: perspective as we embark on the next phase of our growth. Last but not least, our board has authorized the $60 million two-year share repurchase program. We are in strong position to invest in growth as well as return capital to our shareholders. This demonstrates our commitment to driving shareholder value and generating the highest return for our investors by deploying capital wherever we see the best opportunity. whether that's investing in our growth initiatives, executing on disciplined acquisition, or returning capital to our shareholders via share buyback. So to take a step back, we outpaced the social casino market in the first quarter in line with our expectations. But for us, the top line coming out of this quarter isn't just growth, it's momentum. The momentum we continue to generate quarter over quarter as we execute on our suite of strategies to expand our market share. And that's what makes us so excited, not just about the results we saw in the first quarter, but also the results we anticipate going forward. Indeed, our success reflects the successful execution of the plan that has been in place for some time. I mentioned, for example, our success of our increased investment in marketing which was made possible by our record LTVs we began to see. And we are just getting started. We are continuing to invest in our SidePlay engine with the goal of continuing to increase reach, improve retention, provide enhanced value to the players, and ultimately deepen our player engagement and monetization. And we saw great results this quarter. Monthly paying users and monthly active users improved sequentially, while our payer conversion rate remained at record levels. Also, ARPDAL was strong at $0.74, up from $0.67 in the first quarter of 2021. As we continue to product size our core capabilities, centralizing Project All-Star to benefit across all portfolio again We're creating the next catalyst to enable to accelerate revenue growth and drive sustainable profitability. Concurrently, we continue to invest in our direct-to-player platform, which will further enhance revenue growth, customer LTV, and margins. All of the investments are already beginning to deliver returns, and we couldn't be happier about what all of these initial returns look like. That's why we are confident in achieving our 2022 revenue growth target of 10% we provided last quarter. And we'll remain on pace to achieve 29% full year 2022 AEBITDA margin. Before I turn it over to Daniel for more detail on our financial performance, let me just briefly speak to the early success of the ELICTUS acquisition. Integration is proceeding extremely well. and both teams are delivering solid results. We are on target and have great news to share. Ellictus executed successfully on the product roadmap in the first quarter, releasing two new games, one of which achieved number one free games on the US Google Play and number five free games on the iOS US App Store. In acquiring the company, we added 28 million monthly active users. More importantly, we added the opportunity to achieve increased synergies. I'll give you one example. Ellictus' in-app advertising technology allows us to diversify our revenue by giving us flexibility to design games that get both monetized through in-app advertising, in-app purchasing, or a hybrid revenue model. And we are already seeing a perfect opportunity to take advantage of this new capability with Solitaire Pet Adventure. On top of that, we're going to be able to cross-sell between social casino and casual, helping us maximize the LTV across the entire portfolio. I had a chance to visit with the whole Ellictus team in Turkey, and I came back even more excited about the acquisition. We have a lot to look forward to as we scale this high-growth, profitable business even further. You'll hear more about the strategy and business next Tuesday, May 17, at our Investor Day, including a sneak preview of Project X, which is on track for launch in the second half of 2022. Trust me, you won't want to miss that. And now, let me turn it over to Daniel.
spk07: Thanks, Josh. I, too, will try to keep things short. I will just run through some financial highlights quickly, and then we'll open up the call to take your questions. Let me start by reiterating what Josh said. This was an extremely strong quarter, building off the strong momentum from fourth quarter to achieve our second-highest revenues ever. Total revenues increased 5% year-over-year to $158 million, and excluding electives, revenue growth was about 3% year-over-year. Coming off those excellent results, we're on target to achieve our target of 10% full-year revenue growth and 29% full-year 2022 EBITDA margin. And I'll note again, this outlook reflects our expectations that margins will scale over the course of the year and next year as the investments Josh talked about drive revenues. Net income for the quarter was $32 million, and our net income margin was 20%. Both were impacted by our investments and growth initiatives. You can see the scale of those investments in the numbers, but also the initial impact of their returns. We generated a EBITDA of $44 million, including investments we made during the quarter. Our first quarter EBITDA margin of 28% is consistent with our expectations and we continue to expect margins will scale in the second half of the year. However, as we've said today, the initial returns on those investments are reason for excitement. As Josh mentioned, our engagement and monetization metrics are very strong. Players are spending more time and money in our games, and we achieved record revenues for Goldfish and Quick Hit. Player LTV and retention is at an all-time high we're already generating attractive returns on our ad spin as we increase the funnel of new players and continue to grow our business and even as we grew our user base payer conversion matched our record results from the fourth quarter 2021 standing at 8.9 percent this is 80 basis points above our conversion rate of 8.1 percent in the first quarter of 2021 As we look forward, we expect to benefit from the investments in our growth initiatives in the second half of 2022. And the impact of the top and bottom line will accelerate into 2023 and beyond. You can see why we're excited about our future. Now turning to cash flow. We generated $37 million in operating cash flows in the first quarter, resulting in strong conversion rates. And even after paying $106 million for the Olictus acquisition, cash on our balance sheet only declined $72 million sequentially and stands at $292 million. The strength of our balance sheet and our highly cash-generative business provides us with financial flexibility to execute on our vision while returning capital to our investors. To that end, we are pleased to launch our first share repurchase program. reflecting the capacity to execute on our growth strategy while concurrently returning excess capital to shareholders through stock repurchases. And given our current valuation, we believe this is an opportune time to buy back our shares. So to sum it up, we're thrilled about where we are and where we're going. First quarter 2022 saw us reach our second highest quarterly revenue ever, and we generated $37 million in operating cash flows. As we continue to invest, we are creating the foundation for sustainable top-line growth and profitability. We have a lot of exciting initiatives and look forward to continue to generate shareholder value as we execute on our plan. With that, I will open it up for questions. Operator?
spk01: Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then 1 on your telephone. To withdraw your question, press the pound key. Again, that's star 1 to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ryan Sigdahl with Craig Hallam. The line is open.
spk04: Good afternoon, guys. Congrats on the results and the newly authorized buyback.
spk00: Thank you very much.
spk04: Curious on the contract you have with Light and Wonder. It was a three-year contract when you guys IPO'd. I believe it expires in May. But any update on plans and new arrangements there?
spk00: Yeah. So, Ryan, first, thanks for the question. It's great to get to talk to you. As we know, the contract is coming to the end here in May, and we have been under negotiations for the past few months to strike a new deal. Both companies are very excited about the relationship. We've been working very well together, and we've even put together some shared roadmaps. So, I feel very confident that we're going to head towards a new deal. The great news is there's zero impact to the business in the short term if the deal isn't done in the next few days because we still have 100% access to all of the slots that were released or that we have access to before May 2022. So excited for the new deal and can't wait to continue the partnership.
spk04: Great. Then just as you consider evaluating the potential for in-app ads as far as legacy side play games go, any updated thoughts there kind of as you've had a chance to digest the Elictus acquisition and what that brings?
spk00: Yeah, yeah, for sure. You know, the Elictus acquisition is just opening up another doorway to, you know, a much larger $13 billion market. in-app advertising. We're learning every day. We immediately see a home for the in-app advertising in our Solitaire Pet Adventure game, which we went back to redesign to include it as part of the core part of the meta itself, so it'll increase the reach. We are currently evaluating whether or not it would make sense in any of the other games inside the portfolio, and as soon as we have a clear path there, we'll make sure that we share it. But we are super excited that it does open up that huge market for us, and as we have our plan to continue expanding in casual, it gives us a much-needed leg up.
spk04: When exactly did you do the redesign on Solitaire Pets? Any initial read-throughs, albeit probably early, and reactions?
spk00: Yeah. So after the acquisition of Elictus and we had access to the technology, we reevaluated the Solitaire Pet Adventure game, which we would have built having an ad monetization arm to it, but we didn't have the technology, so we left it out. With the close of Ellictus, we immediately said, hey, if we're going to do it, it makes the most amount of sense to do it right now, turning it into a hybrid economy that gives us the ability to get the full reach of ad monetization but also include the stickiness and engagement of IAP. We started that design and development, let's call it, in the last four to six weeks. We're hoping to relaunch the game with the ad monetization in it. Let's call it late third quarter, early fourth.
spk04: Gotcha. Good. Last one for me, just on the buyback. Any extra commentary you can give? Is it planning to be kind of programmatic or opportunistic? Thanks. Good luck, guys.
spk00: Yeah, so as we look at how we're going to continue to give value to the shareholders, we always look at organic, inorganic, different ways to drive value. We looked at the stock buyback, especially around the fact that we believe that our share price is very undervalued right now. and so voted on the actual buyback in the last board meeting, and we plan on executing on it no matter what is happening as long as the value of the stock is undervalued.
spk04: Helpful. Thanks, Josh.
spk00: Good luck, guys. Thank you, Ryan.
spk01: Thank you. Our next question comes from the line of Benjamin Salf with Digibank. Your line is open. Thank you.
spk06: Hi, this is Spencer in place of Ben here. With the market backdrop getting a little bit more choppy, how would you assess your exposure to a macroeconomic downturn? Do you think the impacts from recession might be different for social casino versus other forms of video games and entertainment?
spk00: You know... First, thank you for the question, Spencer. It's great to meet you. The great thing about video games, especially mobile video games, is they're very inexpensive forms of entertainment that you're able to basically have at the palm of your hands all the time. They're also low payment forms of entertainment. We don't expect to see any real downturn happen because of inflation or the market. And as of today, we've seen actually increase in engagement and KPIs for our different games. So with that said, we're going to continue to evaluate to see if there is anything one way or another. But right now, we actually are very bullish in the fact that our games continue to grow. We continue to have record quarters, and we don't see that stopping anytime soon.
spk06: Great. Thank you.
spk01: Thank you. Our next question comes on of David Konowski with J.P. Morgan. Your line is open.
spk10: All right. Thank you. Dana, just to follow up on the 10% revenue growth guide, can you just confirm the same underlying guidance you provided on the prior quarter call in terms of outperforming the social casino sector?
spk00: Yeah. So let me jump in, and then I'll have Daniel kind of follow it up. You know, so as we know, According with Eilers and Krychek, they talked about, you know, a 4.7% for the year. You know, we have consistently as a company been able to outperform this market, and we're still very, you know, we're very positive that we will continue to do it. Our quarter ended up almost exactly on plan with many highlights to it with Quick Hit having a quarter, you know, an all-time quarterly record. Goldfish having its sixth consecutive. Jackpot Party, after setting another yearly quarterly record, had one of its top five quarterly records. And so we feel very, very confident about the health of the business and how it's going and continuing to beat the market of the entire social casino. Daniel, anything you want to add?
spk07: Yeah, a couple things. On the 10% year-over-year growth, Remember that we're going to have like 10 months of ELICTUS revenues included in that guidance. Right now what we're seeing in the social casino market is approximately 4.7% growth for the full year. So we believe this is definitely a revenue number that we'll be able to hit.
spk10: And then Josh, you talked about that.
spk00: Oh, go ahead, David. No, no, no. I was going to say we feel very good with the guidance that we gave, and we feel like we're going to continue on the path that we set early this year in Q1. Okay.
spk10: I think, Josh, you touched upon it a little bit in your prepared remarks, but I would be interested to hear more about how you're thinking about leveraging the electives player base over to the core social casino portfolio. Okay.
spk00: Yeah, yeah, for sure. You know, the hypercasual market is one that generates a lot of installs. In fact, it's like 40% of all the installs of the entire casual market. And inside of there is a large portion that overlap with our core demographics throughout all of social casinos. And so as we get them into the elictus games and we are understanding the players, we will start cross-platforming them or cross-gaming them to the higher LTV games in the rest of our portfolio in order to extend the lifetime value of each individual. Now, with that said, you know, we're... two months from the close of the acquisition, and we're still doing the early integration. So it will take some time before we start actually moving people over. I think you'll start seeing the actual movement happen, call it Q4, Q1 of 2023. Thank you.
spk01: Thank you. Our question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
spk05: Thanks so much for taking the question. I want to come back to some of the comments you made in the opening remarks around marketing investments, and you seem like you're seeing pretty good returns on deploying money in marketing channels. That seems a little bit in contrast to others in the broader industry that are talking about compressed ROIs or pricing inflation or the elements of maybe lower returns given some of the privacy changes that have made more broadly in advertising. Just wanted to go a little bit deeper on what you're seeing in maybe some of the channels where you're finding some success on the marketing side? And maybe following up on the last question, how do you think about elements of mining existing user and gamer bases from a first-party standpoint to build maybe a marketing engine that could drive higher ROI just beyond the short-term comments and the prepared remarks? Thanks.
spk00: Yeah. So, you know, first and foremost, I'm going to give the credit to our extremely talented growth team. They put together a plan for this year and expected paybacks, returns, and they are exceeding all of the expectations. So we went into the year with the highest LTVs across our portfolio, and with having the highest LTVs, it allowed us to look at potentially spending more for user acquisition or CPIs for each individual. we came in with assumptions of a little bit of growth quarter over quarter, but not that much for CPIs, and it held actually underneath what our original projections were, and the LTVs ended up being higher. So this is how we ended up at, you know, outbeating our own expectations by about 3% for the quarter. You know, we've seen this across most of the major channels, And I want to give again, once again, the credit goes to the growth team and the game teams. You know, the growth team in finding the right people and the game teams for building a product that is really engaging the users and then giving them the experience that is causing more and more of them to become payers, which is what you saw with our highest number of payers that we've had as a company ever, including the height of COVID. Okay. You know, with the first-party data, I will say we are talking about this all the time. And one of the advantages of the Elictus acquisition is it gives us a lot more first-party data to a lot of installs per year or per, call it per month. I don't know that we're looking at getting into the ad advertisement business. But keeping this first-party data so we can use it across our entire portfolio is actually something we're talking about today and we are planning on utilizing as a company as we start doing the cross-platform. Because as we all know, it's getting harder and harder to reach new users, and this is an advantage that it will give us as we continue to expand our platform. into casual.
spk05: Great. Thanks for all the color, and I look forward to the analyst day next week.
spk00: Yeah, us too, Eric.
spk01: Thank you. Our next question comes from the line of Aaron Lee with Macquarie. Your line is open.
spk09: Good afternoon. Thanks for taking my question, and congrats on the quarter. Thank you so much, Aaron. Yeah, nice surprise to see monthly users and payers up so much. I wanted to dig a little deeper on that. Was that a function of your decision to extend the payback period or, you know, certain features or developments you introduced in the quarter? Just curious if there's anything you'd call out there.
spk00: Yeah, it is literally a mixture of both. So, you know, we had the perfect of, you know, being able to increase more because of the heightened LTVs. We were able to bring in more users. The health of the games has us at the top of the retention we have had. And then the legacy users are also more engaged than they've been, which is why we're seeing such an increase to ARPDAU and also monthly paying users. Because they're so engaging, we're seeing a decrease in churn. So it's actually all three of them together is what drove the increase in Q1.
spk09: That's fantastic. As a follow-up, in your prepared remarks, you noted Ellictis launched two new games in the quarter. Can you share how many games are in the pipeline and what the roadmap looks like for the balance of the year?
spk00: Yeah, so I can't share the exact number because it will fluctuate quarter over quarter, mainly based on market opportunities and development. I would say they're normally going to release somewhere between three to call it six games a quarter. And the difference between the three to six are sometimes, you know, the amount of development, if it's a shorter development. Two, if there's a new trend that is coming that we want to take advantage of. Or just three, we have more bandwidth than we originally thought and we're able to create more. So, you know, I wish I could give you an exact number, but it really does fluctuate quarter to quarter based on the opportunity.
spk09: Okay, that's helpful. Thanks so much. We'll see you guys next week.
spk00: Yeah, see you.
spk01: The next question comes from the line of Franco Brenda with DA Davidson. The line is open.
spk02: Good afternoon, everyone. I know that you said you were trying to keep the call short, but it seems like we're just making it difficult for you. Just following up on a question earlier, can you please break out what your ad revenues for the quarter were and then Can you talk about what your expectations for ad revenues, essentially, are like this, as a percentage of the growth you're seeing for the full year?
spk00: Yeah. So, first, you know, anytime I get a chance to extend the phone call talking to you, it's definitely worth it. So, you know, good for all of us. You know... Because the acquisition happened in March, so it was a very small part of Q1, we did not break out the ad monetization, and we decided not to disclose it for the quarter. We are evaluating how to do this and looking at implementing a new breakout at the end of Q2 or maybe Q3, depending on the timing, but also a breakout of the KPIs. Daniel, how would you like, any color you'd like to add? No, I just want to make sure you covered the KPIs. Okay, yeah, so hopefully that's, okay.
spk02: Yeah, that makes total sense. And then from another question earlier, let's see, we talked about 9% conversion, and that's one of the highest I've seen on the industry, so congrats on that. But I guess to me the logical question is how sustainable do you think that is moving forward for you guys?
spk00: So we believe it's extremely sustainable. It really goes to show, you know, we're functioning as a company today. You know, we're hitting on all cylinders when we're bringing in the right people into the game. Our live ops and events are engaging the users on a day-to-day basis as well as they ever have. The new meta features coming in the game are changing behaviors. And we're using the data analytics in order to keep tailoring and morphing the game for people. You know, all of this is driven through our Project All-Star program. And I think we're just seeing the beginnings of this. And as we take the learnings of Project All-Star and get it embedded into the SciPlay engine and hook it into the rest of our portfolio, you know, I honestly don't know what the upper bounds are, but I can tell you that I believe it will continue going up for sure.
spk02: Excellent. That's very encouraging. And then lastly... I guess, do we expect to hear some type of long-term financial model next week?
spk00: So as of right now, we're not going to talk about exactly what's going to come into the investor day for next week. I do believe there are a lot of exciting news, and there's a lot of things that will be worth coming in there. So I think I'm going to tell you you're going to have to wait to see.
spk08: All right, sounds good. Well, looking forward to that.
spk00: All right.
spk08: Operator, we have time for one more question.
spk01: Our final question comes from the line of Matthew Thornton with Truer Securities. Your line is open. Thank you.
spk03: Hey, good afternoon, guys. Thanks for squeezing me in. Josh, I joined late, so I apologize. I'm going to ask a couple questions that have probably already been answered, so I apologize. It sounds like you guys are reaffirming the same revenue guides that you talked about, doing better than the 4.5% for core social casino, then when you layer in a lictus, you get to 10%. I just want to make sure that I heard that right. And any update on the full-year EBITDA margin outlook? I think it kind of triangulated to about 20%. Nine spot, 2%. Is that still kind of how you're thinking about the full year? I'll stop there, and then I've got a couple follow-ups.
spk00: Yeah. No, exactly right. We feel like our Q1 was really exactly on plan. We're actually seeing ahead of expected on our ad revenue, and our KPIs and our core titles look really good. Electus performed almost to the T of the model there. And so from our side, we are 100% on plan for the year. Perfect.
spk07: Yeah, the one thing I would add is, you know, from, you know, the step down we had margins in Q1, you're probably going to see some of that coming into Q3 or Q2, and then we'll start to see it ramp into Q3 and Q4 to get to that full year 29% AEP at a margin.
spk03: So think about something maybe flattish into 2Q before it starts to upward trajectory?
spk07: That's fair.
spk03: Okay, gotcha. And then just a couple of the initiatives I just want to touch on quickly. You talked about Solitaire, Pet Adventure a little bit earlier. I think we were getting to the point where maybe we were getting close to really starting to lean into UA. I'm just kind of curious where we are in that path. Are we leaning in yet, or are we still kind of trying to figure things out? And similarly, Project X, are we still on track for the back half of the year?
spk00: Yeah, so the Solitaire Pet Adventure we did talk about a little bit earlier. So, you know, as we were finishing developing the game, we also closed on Ellictus. And when we closed on Ellictus, we got access to ad monetization technology that we all believe is a good technology to integrate into Solitaire Pet Adventure. To be honest, if we would have had that technology up front, we would have done a hybrid design of the game up front, but we didn't. But since we're looking at the long term of the game and making sure that we can create the best games that we possibly can, we actually decided to take a step back, redesign it a little bit to add the ad monetization element into it, We're doing the development on that right now, and I would expect to see the game relaunch, but relaunch with the inclusion of IAA and late Q3, early Q4. As far as Project X goes, we are 100% on plan with our milestones, and the game is looking amazing. I can't wait to reveal more next week. so please join on the 17th because we are going to give more information and even show some pretty cool stuff with it.
spk03: Awesome. Maybe one last one, if I can slip it in, then I'll let you go. The DTC platform, I think you talked about as early as late this year, but probably more 23. Is that still how you were thinking about it?
spk00: Yep, we're also on schedule there. I mean, it's kind of a process to get through it, We cannot be more excited with it. You know, it's going to allow us to become closer with our customers as we're going to own the actual platform that they're going to play on. We're going to be able to tailor the experience a little bit deeper and, you know, It's going to allow us to be able to push some users directly to our own platform. I expect to see the platform launch at the end of this year, not starting ramp until 23. I really wouldn't expect it to be meaningful, though, as far as contributing to the margins until probably 24. Gotcha. That's great. Thanks, everyone. Thanks, everyone.
spk08: Great. Thanks. I'm going to turn it back over to Josh for some final comments.
spk00: Thanks, Jim. Thanks. You know, I'm going to close by thanking our team members who made the strong reports like today's possible. Their execution of our strategy is a testament to the culture that emphasizes high performance, collaboration, and teamwork across the organization, a culture that continues to attract best-in-class talent so we can deliver fantastic games even when we maintain a keen focus on our bottom line. We'll provide more details, insights, and insights on the road ahead and upcoming opportunities to enhance shareholder values at next week's Investor Day. I hope to see all of you there.
spk08: Great. Thank you, everyone, for joining our first quarter earnings call. I'll turn it back to the operator.
spk01: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Disclaimer