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spk08: Good day, and welcome to the SciPlay third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Weiner, Vice President, Investor Relations. Please go ahead.
spk04: Thank you, Operator. Good morning, everyone. During today's call, we will discuss our third quarter 2022 financial results and operating performance, which will be followed by a question and answer period. With me today is Josh Wilson, CEO of SidePlay, and our interim CFO and VP of Finance, Daniel O'Quinn. Our call today will contain remarks that include forward-looking statements under the Private Security Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For more information regarding these risks and uncertainties, please refer to our earnings release issued yesterday and our filings with the FPC. We will discuss certain non-GAAP financial measures, including key performance indicators, which are based on in-app purchases only. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release, as well as in the investors section on our website. As a reminder, this conference call is being recorded. A replay of this webcast will be archived in the Investors section of our website at SidePlay.com. Now I'm pleased to turn the call over to Josh.
spk12: Good morning, everyone, and thank you for joining us. Today I am very excited to provide you with details about SidePlay's progress towards becoming the leading mobile games developer and publisher in the industry. Based on our third quarter earnings, I am confident you will enjoy agree with SidePlay's growing success. SidePlay is clearly outpacing the industry. The preliminary Eilers and Krychek Social Casino Game Tracker issued on October 27 indicates a 1.7% industry year-over-year decline versus SidePlay's 13% revenue growth in social casino, representing exceptional overperformance. Given our strong momentum, We are maintaining our financial targets for full-year revenue guidance of approximately 10% and anticipate we will achieve our A EBITDA margin in the range of approximately 28% to 29% for the full year. At the beginning of this year, we discussed our vision and our focus. SciPlay puts our player first, customizing the individual experience. This focus is the catalyst for our success and durable growth. In the third quarter, we executed and outperformed, delivering strong revenue growth of 17% year-over-year and an all-time revenue record, maintained strong AEBITDA margins, performance aligned with our goal, and we continued to invest in our core capabilities, which delivered our highest returns and helped us fuel this performance. Our global team of almost 800 Sideplayers are driving this strong performance. I thank each one of them for their continued commitment, passion, and expertise that has led us to achieve multiple records and further propel us to reach our goal. Sideplay hit an all-time quarterly revenue record of $170.8 million. This is higher than the pandemic-related peak. We delivered a record number of payer conversions and paying users, leading us to a record ARPDAU of $0.80, up 16% year-over-year. Achieved net income of $33.7 million and earnings per share attributable to side play of $0.20. A EBITDA came in at $42.8 million, or 25.1% margin. And we repurchased $28 million of our SidePlay stock through November 4th, amounting to nearly half of our share repurchase program since it was authorized in May. Now, let's dive deeper into Q3. Overall, SidePlay outpaced the social casino market. Jackpot Party had a very strong double-digit year-over-year growth. This was the best quarterly performance in the 10-year history of the game. QuickHit slots had an exceptional double-digit year-over-year growth and posted its best quarter ever. This quarter marks QuickHit's third consecutive quarterly revenue record. Monopoly slots also posted strong growth year-over-year. These evergreen social casino franchises are at the core of SidePlay's portfolio and demonstrate market longevity, driving consistent growth, and increased profitability for the company. During Q3, we continued to enhance monetization and achieve quarterly records across several of our key metrics. Record ARPDAU of 80 cents, record payer conversion of 9.7%, record average monthly paying user of 600,000, record 10 consecutive quarters of average monthly revenue per paying user above 90 dollars. This performance is a direct result of our player-to-payer focus and our highly effective live ops strategy. Cycli's durable growth is a direct result of our strategic investments, long-term strategy, and strong execution of our operating plan. During the third quarter, we make key investments that provide us with multiple levers to drive sustained growth and long-term margins. We are investing in the transformation of processes and capabilities through the SidePlay Engine. This robust tech standardizes our analytics and segmentations across our portfolio. Utilizing the SidePlay Engine, we have been able to deliver better content than ever before, further enhancing gaming experiences, deepening players' engagement, and capitalizing on strong live ops to boost overall monetization and profitability. We have continued to invest in the direct-to-consumer, aka our DTC platform, which is on track for a Q4 soft launch. User-based growth is expected beginning in 2023. In combination with the SidePlay engine, our DTC platform unlocks the potential to drive long-term margin expansion and accelerate scalability. These two strategic investments provide us with a more direct and individualized relationship with our customers and long-term margin growth. Blacklight continues to invest in our games portfolio. We conducted pre-market research on Spellspinner, Fantasy Quest, which generated favorable indicators. We are on target to start testing in the fourth quarter. In Q3, we relaunched Solitaire Pets Adventure and are evaluating its long-term retention and potential for its scalability. Since acquiring Olictus, we have launched several games. Master Doctor 3D achieved commercial success with 27.5 million downloads to date. And the recent launch of Fade Master 3D Barbershop has seen more than 3.5 million downloads in its first month of scaling. SightPlay is also invested in its ad monetization this year through the acquisition of Elictus, gaining crucial ad monetization capabilities, giving us a two-year jumpstart versus building our own. We are seeing great results from our traditional direct marketing channel. As evidenced in the EILERS report, our direct user acquisition strategies are performing very well in the tough environments. These campaigns have been the long-term drivers of our business and we are outperforming many competitors in the market and gaining share. We are tapping into new channels to apply our user acquisition strategies and experiencing increased overall awareness of our games and brands. One of the ways we are executing these strategies is with our marketing innovation campaign. This is important as we position our D2C platform and prepare for its launch. Our Q3 marketing innovation campaigns include primetime TV appearances and a sports sponsorship deal. Jackpot Party Casino ads featuring Sofia Vergara were broadcast once a week during the 12 episodes of American's Got Talent's 17th season, viewed by an average of 6.3 million people per episode. Goldfish Casino imagery was wrapped around the featured NASCAR race for eight races this season with an average viewership of 2.8 million per race. We are seeing initial indicators for the improved UA installs and lower expense versus the rest of the industry, resulting in higher ROI potential. While it's too early to make conclusion about the indirect UA, These innovation campaigns were designed to raise overall brand and game awareness. The campaign's impact on financial performance is expected to be realized in the future period as higher LTVs compound. With this strong performance in our highly cash-generative business, we've created significant excess capital, which we are returning to our shareholders. We believe our stock is an exceptional value. In just under five months, we have repurchased nearly half of our current $60 million authorization, and we anticipate repurchase activity to continue. This is where we are today. The future looks bright, and I am excited to discuss where SciPlay is heading. Our strategies and investments have positioned SciPlay to take competitive leads in the current business environment, and emerge in a stronger future economic setting. We believe we have an unprecedented combination of opportunities and capabilities to grow and scale our business. First, our social casino portfolio is outperforming the market. Several of our steady growing evergreen franchises have been consistent long-term performers. We have significant opportunity to grow our DAO and close the gap with our competition. Second, our upcoming D2C platform is expected to expand our reach and potential to drive long-term margin expansion. Third, we continue to develop and publish a solid pipeline of games and expect to launch one to two games a year. And finally, we have a strong balance sheet and are highly cash-generative and well-positioned with significant liquidity. SciPlay's 25-year history is characterized by its player-centric focus, recognizable content, highly productive teams, leadership stability, and a great company culture. As we finish out 2022, we remain confident in our consistent performance of our game and our commitment, dedication, and experience of our team. Our strategic investments, including in the SciPlay engine, and our upcoming direct-to-consumer platform will enhance our ability to drive growth and long-term margin expansion as we continue to scale ArcDAO and gain competitive advantages in the current business environment. Thank you for your time.
spk03: I will now turn it over to Daniel to discuss the financial. Thank you, Josh.
spk02: Good morning, everyone, and thank you for joining us today. FifeLay delivered a strong performance in the third quarter with our social casino gains continuing to grow and outperform the market for the second consecutive quarter. Now, I will discuss the details. Revenue of $171 million was up 17% compared to the prior year period and 7% sequentially over the second quarter. Growth was primarily driven by the continued strength of our social casino gains and contribution from Elictus. Net income for the quarter was $34 million, and our net income margin was 20%. EBITDA was $43 million, including $9 million in additional marketing innovation expense in the third quarter of 2022. We achieved an EBITDA margin of 25%, and the marketing innovation expense impacted margin by approximately 500 basis points. This expense will not occur in the fourth quarter, and we remain on track to achieve our EBITDA margin target for the full year. We remain focused and confident in our ability to achieve our financial targets of approximately 10% revenue growth and 28 to 29% EBITDA margin range for the full year 2022. I'll turn to our key performance metrics in the third quarter. ArcDAO achieved a new record of $0.80 versus $0.69, an increase of 16% compared to the prior year period, with a DAO base of $2.2 million compared to $2.3 million in the prior year. Average MPU increased 11% year over year, while average monthly revenue per paying user increased nearly $2 year-over-year to $95. This marks 10 consecutive quarters above $90, illustrating the traction we're seeing with our payers through our focus on retention. This resulted in record payer conversion rate of 9.7%, 120 basis points above our payer conversion rate of 8.5% in the prior year. Year-to-date, SidePlay has generated $95 million in operating cash flows. Cash flow in the third quarter was impacted by the $25 million legal settlement payment and working capital changes primarily due to the timing of platform collections. At the end of the third quarter, we had $299 million in cash on hand and no debt. Since the inception of our $60 million stock repurchase program beginning in May, We've repurchased approximately 28 million or 2.2 million shares of SidePlay stock for an average price of approximately $13 per share, reflecting activity through November 4th. Earlier, Josh touched on our operating discipline, which we stringently apply to investing in our business while also executing to achieve our targets. We have made significant investments in the challenging macro environments. We remain focused on executing our strategy and driving long-term shareholder value in 2023 and beyond. In conclusion, it is a very exciting time to be a part of SidePlay. We have an energized, execution-focused team with significant growth opportunities. Our vision remains to be the industry's leading mobile game developer and publisher.
spk03: And with that, I'll turn it over to Josh for closing comments.
spk14: Operator, if you could open the line for Q&A, that would be great.
spk08: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Thornton with SunTrust. Please go ahead.
spk19: Hey, good morning, guys. It's Matt Thornton at Truist. Josh, I was hoping maybe you could tease apart how Elictus is performing in the quarter versus Legacy Web. I think that bucket was collectively a little bit better than we were thinking. And as we look forward, I guess, maybe some incremental color. I think on the web side of things, I would think the way to think about that is the launch of DTC will drive – margin and profitability in that bucket of revenue, but I'm definitely looking for some more color maybe on how you're thinking about Ellictus a couple quarters into the acquisition. Should we continue to expect that to grow into next year or just your latest thoughts on how to think about Ellictus in 23 and beyond? Thanks so much.
spk12: Yeah, thank you for the question, Matt, and it's great to talk to you. You know, for Ellictus, we're making great progress. As we talked about last quarter, You know, with the challenges of IDFA, we needed to shift our strategy to really becoming an Android-first company when we launched our game. We spent a significant amount of time in Q3 working on building out this technology, making sure that it runs on the Google platform, you know, free of ANRs, free of crash rates. And, you know, we've seen really good progress with the release of the newest game, Barbershop 3D, Fade Master, which has really hit the ground running, even spent a little bit of time number one, which leaves us very, very positive into what we could see going into next year as we continue to launch a couple of games each quarter. At the same time, we are going to look at different ways of evolving as the hyper games casual genre has evolved as ways to retain players just a little bit more. And by retaining players just a little bit more, you add a significant amount to their LTVs. But I do want to, you know, it would be a hard thing to say is like everything we've seen in the positive movement forward in this very challenging market is because of the amazing team in Turkey. You know, Emory and Edgem have built a team that is, you know, top, number one in the class. They are intelligent. They are fast moving. They are nimble. And it's their positive movements and creative thinking that has really, really allowed them to shift. and get back to a spot that you're starting to see hyper game genre get more and more downloads again. For your second question, you say web, and I'm going to take that as you mean our core business, or do you actually mean like Facebook web?
spk19: I was talking about the Facebook web bucket. Like I said, I think that collectively, web and advertising was probably a little bit better than we expected. Obviously, you just hit on the Ellictus side of it, so I'm curious about how to think about the legacy website because, again, I would think the DTC platform is very applicable there and could drive margins up in that business, but I'm not sure there's much else we should be thinking about there. Any color would be great.
spk06: Yeah, so I'll jump in here.
spk07: So when we acquired Ellictus, We basically recorded the revenue in what we call web and then categorized it as other. You know, we're continuing to evaluate, you know, when electives become more material to where we need to break that out from an advertising standpoint. But the one thing I will say is, you know, our mobile percentage allocation in our revenues has been pretty consistent year to year.
spk12: And then as, you know, we continue to build our games out on the web platform, form especially our core games uh you are a hundred percent right they will be you know call it the low-hanging fruit for moving over to the dtc platform because they're already playing they're already facebook connected and they're already playing on the web uh so they'll be some of the first people and are uh some of the first tests to our dtc platform that are happening this quarter all right that's great i appreciate it i'll jump back in the queue thanks okay thanks matt
spk08: Our next question comes from Aaron Lee with Macquarie. Please go ahead.
spk05: Hi, good morning. Thanks for taking my question. So it's nice to see average revenue per payer up with the number of paying users up also. I would have thought more payers might have diluted that average spend. Can you talk about what's behind that dynamic and how you think that could trend going forward?
spk12: Yeah, thanks for the question, Aaron. It's good talking to you. You know, I think there's a couple of different things, but they all come back to the investments we're making and the stability of our core franchises and how they're behaving. You know, one is, you know, being able to use the SidePlay engine across all of our games as we're starting to implement it. We're seeing higher engagement. And the higher engagement is giving us more time on app, and the more time on app is equaling not only more purchasers, but more purchasing per purchaser. And because of this, and then you add to that the health of the games for bringing in new users are generating the highest LTVs that we have ever seen as a company. the two things are adding together to drive up that monthly average revenue per paying user. Normally, what you would see is when you add new payers, it would bring it down. But because of the mixture of us increasing the LTVs and increasing the engagement, we're seeing a rise.
spk05: That's perfect. Great. And you continue to outperform the industry. and it seems like the internal investments you've been making this year are paying off. In terms of 2023, how should we think about any platform investments next year relative to this year in terms of magnitude or however you'd like to frame it, and what are the different buckets?
spk12: Yeah, so, you know, I think the buckets, to be honest, are relatively the same, but they're going to be more in-depth, but The one thing as a company that we're focusing on is any place where we can make an investment that will touch multiple titles at once. So we have the individual game teams that are developing their features and running the franchises as their own. But at the same time, we have this amazing side core team that is doing kind of like building out of the side play engine, building out of our data core, our side data capabilities, building out our side tech capabilities. And each one of these, when they release, are open to all of the games at once. So we're able to build once but get across the entire platform. We're going to continue investing heavy there. We're also going to continue investing heavy on our ad tech capabilities, which have given us the ability to really keep our CPIs in line throughout the entire year this year. And by keeping them in line but increasing the LTVs, we're starting to see, I mean, let's be honest, we're starting to see better than expected ROIs on all of our UA spend. And so putting both of these together and then at the same time looking at new game opportunities or new segments in the market where we think we have a competitive advantage in that we can build something that we can scale and win because we know how to run it better than everyone else, will be where you see us launching new titles and new sources of revenue in the next coming years. Fantastic.
spk05: Thank you so much.
spk14: Very welcome.
spk08: Thank you, Aaron. Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.
spk16: Maybe I can follow up on that last question and then ask an additional one. I hope everyone on the team as well. In terms of the investments you're making for the longer term, is there any way to quantify the headwind that that was to adjusted EBITDA in 22 or the type of headwind? It could be directionally in 23 so we can better understand maybe some of what the underlying earnings power is. that's being masked by those investments or that cycle you're in right now. That'd be number one. And number two, you know, with the capital return policy, how should we think about that being measured against the ability to go out and possibly do some M&A and acquire additional scale or additional ad tech capabilities? How do you think about the rank order of ways in which you're thinking about allocating capital, especially since the broader environment has had such a Correction between public and private valuations.
spk12: Thanks Yeah, so let me let me start with the second question and then bounce back to the first so, you know internally we've always been very diligent with our you know capital allocation because we're always focused on what we believe will drive the long-term shareholder value and This is why when we started the year, we felt so confident in our internal investments because we do know that we own so many core franchises that have the ability to grow year over year over year. And the investments that we make there are always the highest return on investment because every dollar we make in our current games is a more profitable dollar than the next new game that comes out. At the same time, You know, we are acting, you know, very, very aggressively on our stock buyback program. You know, we put in a $60 million over two years. And within the first, you know, five months, we've almost gone through 50% of the $60 million. You know, for two reasons. One, we think our stock is very undervalued. And two, that it is a great return to the shareholders. So we'll continue to evaluate, you know, items like this and make sure that we are that we are acting on these. As far as the M&A world, I would say that M&A is something that we constantly look at and we've always been looking at it, but it isn't our first moment to invest in. Our first moment is the first two things I just talked about. It is our core game investment to make sure that we are going to consistently grow as a company. And then how can we get value to the shareholders? From there, we do. We go look at the market. We see how the evaluations are coming. But we're going to be as diligent as we always have. We're going to not stretch ourselves. We're not looking to buy revenue. We're looking to buy long-term growth and long-term shareholder value. And as the market continues to evolve, we'll continue acting like we always have because we want to continue running our business responsibly. For the next question, how do we think of the investments as a whole? I would think of them as something that we will continue doing forever because the side play engine will continue to evolve. Ad tech will continue to evolve. These are not things that you get to do once and just leave them sitting on the shelf because Every day you get new data, and this new data identifies a new gap for you to be able to go after. And as you close these gaps, you change the long-term behavior of the player, giving them a better experience, and really, really focus on keeping them in our atmosphere, our environment, as long as we possibly can. You know, the mobile game world has changed pretty significantly over the last two years, and it has never been more important than it is today to focus on long-term retention. And this is what our investments are doing. They're focused on keeping our users playing our games and making sure that we're their first choice when they're looking for an entertainment value.
spk16: Really appreciate it, Josh.
spk08: Thank you. Our next question comes from Franco Granda with DA Davidson. Please go ahead.
spk10: Good morning, everyone. Thanks for taking my questions here. I was hoping you could expand on your DTC platform. Do you plan on adding player-focused features that go beyond the experience in mobile and not just going to Cypher.com to play the games, or how should we think about that?
spk14: Franco, it's great to talk to you, man.
spk12: How are you? And doing great. Hopefully you guys are doing good too. Amazing. Yeah. You know, we could not be more excited about the opportunity of a DTC platform. You know, remember we're in the early stages right now. We're just going to do our first test here in the next couple of weeks where we're going to select, you know, particular users that we're going to let them come in, start trying it out, you know, And, you know, really it's about vetting out the technology. As we start to move forward and we start to feel like the platform is a stable platform that we're able to start growing, then we're definitely going to look at how do we improve the experience and make our DTC platform the greatest experience that we possibly can, whether or not that is unique features to that, whether or not that's a – unique content that is only on the DTC, or whether or not that's just a better experience over time. The great news is because it's a platform that we own, it is a platform where we 100% control the communication to the user, and it gives us the ability to enhance their experience. Now, I do want to set expectations. It's going to take time for us to grow into it. For the main reason, this is a brand-new platform, but these are customers that we own today, and they are customers that are part of our ecosystem. We do not want to lose a customer because we pushed them too fast to a platform that was not ready. So I would not expect it to be hugely material in 2023, but we will start to ramp it in 2023.
spk10: So you're saying two equity analysts to not get ahead of themselves. Seems like something we're not very good at.
spk12: Yeah, yeah. I mean, it's just ultimately like every new platform, whether or not it was when Windows launched or when Apple, Facebook launched, they're bugs. And you have to make sure that you're delivering the greatest experience you can. And for us, in this case, since they're our current players, it's even more important that we're giving them the best experience possible.
spk10: Absolutely. As a consumer myself, I can tell you experiences first. And then can you talk about Perhaps some of the last-minute changes that Spill Spinner still needs to go through before soft launch. I think you talked about that still being on track for this year.
spk12: Yeah, so we're very excited. There's been a couple of internal play tests. They've been amazing. The game looks fantastic. Right now, what we're really doing is we're focusing on the abilities that the game can scale. So this is the purpose of doing the tech test, which allows us to stress test the technology and make sure it has the ability to scale, you know, if and when the game is able to really pick up a lot of DAU. We want to make sure that it has the ability on a technology side to handle that. So, you know, when we say the tech test right now, What we're trying to do is stress test the back-end system and make sure that it's able to handle the communication needs of the player as they're interacting with the game.
spk10: And then if I may squeeze a follow-up to that. Can you go into detail perhaps around what the soft launch environment is today versus what you were seeing two years ago before ATT was enacted?
spk12: Yeah, so I mean, in the soft launch world, you're not seeing a huge difference in environment where we're going to see a huge difference in environment is when you go to ramp. And, you know, the ramping is really going to be, you know, the effects of Apple and IDFA. You know, two years ago, As you would know being in you know as involved in the space as I am it would not be unusual that someone would launch a game and spend you know three to five million dollars a month and Really try to ramp that game very quickly in the first you know one to four months even if it was unprofitable They would still ramp it That world is almost impossible now with the cap that IDFA or Apple has put on its platform, which is 55% of the best users are on Apple. And so I think what you're going to see out of new games going forward is less of a straight up, but more of a metered ramp over time because of the cap to buying new users on that platform.
spk09: Awesome. Congrats on the execution once again.
spk12: Thank you so much, Franco.
spk08: Our next question comes from Benjamin Soth with Deutsche Bank. Please go ahead.
spk03: Benjamin, is your line on mute? Let's go to the next.
spk08: The next question comes from Matthew Cost with Morgan Stanley. Please go ahead.
spk20: Hey, everybody. Thanks for taking the questions. I have two. Just looking at the trends over the past year or so for users versus payers, users have been on a slight downward trajectory and payers have just continued to go up. payer conversion as a result has gone up quite a bit. And I guess, should we think about there being some sort of ceiling on payer conversion? How high can that number go before you hit a sort of equilibrium where you've got a smaller pool of non-payers feeding into the payers? That's question one. And then question two is, are you seeing any noteworthy differences in the behavior of your customers, of your gamers in casual versus casino games, especially as we go through this period of macro choppiness? Thank you.
spk12: Thank you for the question. So let me just say the first one. Yes. You know, especially in the social casino market, you tend to see, you know, DAU coming down over time where PPU is going up. You know, I can't really speak to how the rest of the world is doing, but, you know, speaking to how it is affecting us and what we're doing, most of this was a strategic shift in how we behave. We stopped paying attention to DAU and started paying attention to just number of payers that we have in the game. And so we shifted, you know, majority of our development to be focused on engaging features, that would either keep payers engaged longer, give them better experiences, and also converting new payers. And then at the same time, shifted our marketing efforts to be very payer-focused. So we may spend a little higher on a CPI, but we have a higher percentage chance of getting a payer out of it. That still fits what our ROI metrics are. And so... I think DAU is something in casual where it becomes something you really need to focus on. And so I think the difference between casino and casual as a macro environment, casino tends to be a little bit smaller DAU, but a higher percentage of payers. And then casual tends to be a higher DAU, but at less value per user. Now, both of them have great returns. They just get there a little bit different. So I think they're both very good genres to go after, and they're very similar in the fact that they're a simple core game surrounded by a meta. Oh, there was one other question. Oh, do I think there's a cap on PPU? Like, here's the way I think about it. In the last three years, we've increased our PPU by 50%. If I would have said we were going to increase it by 50% three years ago, most people would not believe it. So do I believe there's a cap on it? No, I don't. I believe as we continue to learn more and more about our users and we continue to be able to invest in our side play engine, our ad tech and our data capabilities, we're going to be able to get better and better at predicting what the user needs on a given day. And we're going to be able to not only keep the current payer paying more days a week, but we're going to be able to convert more and more. So, you know, do I know what the ceiling is? No. But I do know in the industry world, there are gaming companies out there that have $1.50 to $2.00 ARCDAO. And it gives us a lot of hope that there is a ton of runway left for us to be able to continue engaging our users and therefore growing their monetization ability.
spk20: Great. Thank you.
spk14: Yeah, you're very welcome, Matthew.
spk08: Our next question comes from Ryan Sigdale with Craig Hallam Capital Group. Please go ahead with your question.
spk17: Hey, Josh, Dan. Impressive outperformance. Just one question for us. Most of it's been asked here, but given the marketing innovation campaigns you mentioned in the quarter seem like some good early success there, but what do you have planned for Q4 and then into 2023? Yeah, so...
spk12: So in Q4, we actually have no marketing innovation plan. Our marketing innovation plan for 2022 was kind of a result of realizing what was happening with IDFA and us being able to pivot and find new channels. And the time it took to struck the deals put us in a situation where we did most of the spend in a very short period of time. With that now known and knowing that these are channels that we're going to look at, you know, all through next year, we've already planned on spreading it, you know, spreading it out more evenly throughout the entire year. So instead of seeing, you know, like 2 million one quarter and eight, seven or nine the next, you're going to see more of like two and a half, two and a half, two and a half, two and a half. Because we do believe that these are channels that have untapped players. that we're going to be able to bring into our ecosystem and have them as a game of choice for their entertainment needs.
spk13: Thank you.
spk08: You're very welcome, Ryan. Our next question comes from Matt Thornton with SunTrust. Please go ahead with your question.
spk19: Hey, Josh. Maybe a couple quick follow-ups. On the DTC platform, can you remind us, I mean, is PlayTika the – the right benchmark that we think about or that you look at or is there something else that you look at from a benchmark perspective? And then just secondly, if you look at the core Evergreen portfolio, obviously a lot of the heavy lifting of late has been done by the two largest titles. If you think about the remainder of the portfolio collectively, is there opportunity, again, through the side play engine, through I think you alluded to Project All-Star previously, is there an opportunity to – to drive outperformance or acceleration in that part of the portfolio? Any color there. Thanks again, guys.
spk14: Yeah, yeah. So here, give me one second.
spk12: Okay, so yeah. So I think, you know, Platica and King or Activision are probably the two DTC platforms that are out there that you would say are, you know, kind of the, today, the gold standard. Our hope is to obviously challenge that and become part of that mix and part of that conversation. And I do believe that, you know, I think Playtika has announced, you know, they're in that 22 to 23% of total revenue a couple of times. So I do believe that is also something that we can shoot to over time. But do remember that they've been on that platform for almost seven years. So it's taken them a decent amount of time to get to that point because you want to be very slow and methodical about moving over the very valuable users to make sure that that experience is flawless for them. You know, as far as how to look at the rest of the portfolio, yes, I mean, Jack Pop Party had an amazing quarter, continues to be strong. QuickHit also has been just killing it three consecutive quarters in a row of growing revenue, and we're just seeing the engagement out of the roof. We spent the last couple quarters doing some investments inside of Goldfish to make sure that it is ready for our side play engine and being able to really optimize live ops and then make the tweaks needed to the meta features in order to push the boundaries. And we feel very excited about the growth of GFC going into 23. Also, at the same time, continue to invest in Monopoly, which saw much, much higher than industry growth in 2022. And then 88 Fortunes, as we continue to evaluate and also get it ready. We've started to work on making sure that this game is a much more international-based game as the brand 88 Fortunes is not just a U.S. brand, but is an international brand known across the world and has a high affinity in many markets. So We are very, very happy with our core franchises going into 23, and I think we have a lot of opportunity to see better than market growth across the board.
spk08: This concludes our question and answer session. I would like to turn the conference back over to Joshua Wilson for any closing remarks.
spk12: You know, we're at a very pivotal and exciting time, and I'm humbled to be part of such a dynamic, high-performing, and very talented organization. You know, I want to thank Daniel for being such a solid and steady business partner to the entire SidePlay company. And as our intern CFO, I'm grateful for everything you've done, and I'm even happier that he's going to continue to stay on as our VP in finance to help us lead our and make sure that we continue to run our business as steady as we possibly can. For those of you that are familiar with Jim Bombasi, you can understand our excitement on what it is going to be to have him join SciPlay on December 1st as our new CFO. We welcome Jim and we look forward to his contributions. Our team remains confident in our products and our ability to effectively execute our business strategy and consistently deliver exceptional results. With that, I will wish everyone a great day and turn it over to the operator to end the call.
spk08: The conference is now concluded.
spk03: Thank you for attending today's presentation. You may now disconnect. you Thank you.
spk11: Thank you. you Thank you. you Thank you.
spk08: Good day and welcome to the SciPlay third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Weiner, Vice President, Investor Relations, please go ahead.
spk04: Thank you, Operator, and good morning, everyone. During today's call, we will discuss our third quarter 2022 financial results and operating performance, which will be followed by a question and answer period. With me today is Josh Wilson, CEO of SidePlay, and our interim CFO and VP of Finance, Daniel O'Quinn. Our call today will contain remarks that include forward-looking statements under the Private Security Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For more information regarding these risks and uncertainties, please refer to our earnings release issued yesterday and our filings with the FPC. We will discuss certain non-GAAP financial measures, including key performance indicators, which are based on in-app purchases only. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as in the investors section on our website. As a reminder, this conference call is being recorded. A replay of this webcast will be archived in the investors section of our website at sideplay.com. Now I'm pleased to turn the call over to Josh.
spk12: Good morning, everyone, and thank you for joining us. Today, I am very excited to provide you with details about SidePlay's progress towards becoming the leading mobile games developer and publisher in the industry. Based on our third quarter earnings, I am confident you will agree with SidePlay's growing success. SidePlay is clearly outpacing the industry. The preliminary Eilers & Krychek Social Casino Game Tracker issued on October 27, indicates a 1.7% industry year-over-year decline versus SIPLACE 13% revenue growth in social casino, representing exceptional overperformance. Given our strong momentum, we are maintaining our financial targets for full-year revenue guidance of approximately 10% and anticipate we will achieve our A EBITDA margin in the range of approximately 28% to 29% for the full year. At the beginning of this year, we discussed our vision and our focus. SciPlay puts our player first, customizing the individual experience. This focus is the catalyst for our success and durable growth. In the third quarter, we executed and outperformed. Delivering strong revenue growth of 17% year-over-year and an all-time revenue record. Maintain strong Aebitda margins, performance aligned with our goal. And we continue to invest in our core capabilities, which delivered our highest returns and helped us fuel this performance. Our global team of almost 800 side players are driving the strong performance. I thank each one of them for their continued commitment passion, and expertise that has led us to achieve multiple records and further propel us to reach our goal. SciPlay hit an all-time quarterly revenue record of $170.8 million. This is higher than the pandemic-related peak. We delivered a record number of payer conversions and paying users, leading us to a record ARPDAU of 80 cents up 16% year over year. Achieved net income of 33.7 million and earnings per share attributable to SyFly of 20 cents. A EBITDA came in at 42.8 million or 25.1% margin. And we repurchased 28 million of our SyFly stock through November 4th. amounting to nearly half of our share repurchase program since it was authorized in May. Now, let's dive deeper into Q3. Overall, SidePlay outpaced the social casino market. Jackpot Party had a very strong double-digit year-over-year growth. This was the best quarterly performance in the 10-year history of the game. Quick Hit Slots had an exceptional double-digit year-over-year growth, and posted its best quarter ever. This quarter marks QuickHit's third consecutive quarterly revenue record. Monopoly slots also posted strong growth year over year. These evergreen social casino franchises are at the core of SidePlay's portfolio and demonstrate market longevity, driving consistent growth, and increased profitability for the company. During Q3, we continued to enhance monetization and achieve quarterly records across several of our key metrics. Record ARPDAU of 80 cents, record payer conversion of 9.7%, record average monthly paying user of 600,000, record 10 consecutive quarters of average monthly revenue per paying user above 90 dollars. This performance is a direct result of our player-to-payer focus and our highly effective live-off strategy. Cycli's durable growth is a direct result of our strategic investments, long-term strategy, and strong execution of our operating plan. During the third quarter, we make key investments that provide us with multiple levers to drive sustained growth and long-term margins. We are investing in the transformation of processes and capabilities through the SidePlay Engine. This robust tech standardizes our analytics and segmentations across our portfolio. Utilizing the SidePlay Engine, we have been able to deliver better content than ever before, further enhancing gaming experiences, deepening players' engagement, and capitalizing on strong live ops to boost overall monetization and profitability. We have continued to invest in the direct-to-consumer, aka our DTC platform, which is on track for a Q4 soft launch. User-based growth is expected beginning in 2023. In combination with the Sideplay engine, our DTC platform unlocks the potential to drive long-term margin expansion and accelerate scalability. These two strategic investments provide us with a more direct and individualized relationship with our customers and long-term margin growth. Blacklight continues to invest in our games portfolio. We conducted pre-market research on Spellspinner, Fantasy Quest, which generated favorable indicators. We are on target to start testing in the fourth quarter. In Q3, we relaunched Solitaire Pets Adventure and are evaluating its long-term retention and potential for its scalability. Since acquiring Olictus, we have launched several games. Master Doctor 3D achieved commercial success with 27.5 million downloads to date, and the recent launch of Fade Master 3D Barbershop has seen more than 3.5 million downloads in its first month of scaling. SciPlay is also invested in its ad monetization this year through the acquisition of Elictus, gaining crucial ad monetization capabilities, giving us a two-year jumpstart versus building our own. We are seeing great results from our traditional direct marketing channel. As evidenced in the EILERS report, our direct user acquisition strategies are performing very well in the tough environment. These campaigns have been the long-term drivers of our business and we are outperforming many competitors in the market and gaining share. We are tapping into new channels to apply our user acquisition strategies and experiencing increased overall awareness of our games and brands. One of the ways we are executing these strategies is with our marketing innovation campaign. This is important as we position our D2C platform and prepare for its launch. Our Q3 marketing innovation campaigns include primetime TV appearances and a sports sponsorship deal. Jackpot Party Casino ads featuring Sofia Vergara were broadcast once a week during the 12 episodes of American's Got Talent's 17th season, viewed by an average of 6.3 million people per episode. Goldfish Casino imagery was wrapped around the featured NASCAR race for eight races this season, with an average viewership of 2.8 million per race. We are seeing initial indicators for the improved UA installed and lower expense versus the rest of the industry, resulting in higher ROI potential. While it's too early to make conclusion about the indirect UA, These innovation campaigns were designed to raise overall brand and game awareness. The campaign's impact on financial performance is expected to be realized in the future period as higher LTVs compound. With this strong performance in our highly cash-generative business, we've created significant excess capital, which we are returning to our shareholders. We believe our stock is an exceptional value. In just under five months, we have repurchased nearly half of our current $60 million authorization, and we anticipate repurchase activity to continue. This is where we are today. The future looks bright, and I am excited to discuss where SciPlay is heading. Our strategies and investments have positioned SciPlay to take competitive leads in the current business environment, and emerge in a stronger future economic setting. We believe we have an unprecedented combination of opportunities and capabilities to grow and scale our business. First, our social casino portfolio is outperforming the market. Several of our steady growing evergreen franchises have been consistent long-term performers. We have significant opportunity to grow ARPDAU and close the gap with our competition. Second, our upcoming D2C platform is expected to expand our reach and potential to drive long-term margin expansion. Third, we continue to develop and publish a solid pipeline of games and expect to launch one to two games a year. And finally, we have a strong balance sheet and are highly cash-generative and well-positioned with significant liquidity. SciPlay's 25-year history is characterized by its player-centric focus, recognizable content, highly productive teams, leadership stability, and a great company culture. As we finish out 2022, we remain confident in our consistent performance of our game and our commitment, dedication, and experience of our team. Our strategic investments, including in the SciPlay engine, and our upcoming direct-to-consumer platform will enhance our ability to drive growth and long-term margin expansion as we continue to scale ArcDAO and gain competitive advantages in the current business environment. Thank you for your time.
spk03: I will now turn it over to Daniel to discuss the financial. Thank you, Josh.
spk02: Good morning, everyone, and thank you for joining us today. ScytheLay delivered a strong performance in the third quarter with our social casino gains continuing to grow and outperform the market for the second consecutive quarter. Now I will discuss the details. Revenue of $171 million was up 17% compared to the prior year period and 7% sequentially over the second quarter. Growth was primarily driven by the continued strength of our social casino gains and contribution from Elictus. Net income for the quarter was $34 million, and our net income margin was 20%. EBITDA was $43 million, including $9 million in additional marketing innovation expense in the third quarter of 2022. We achieved an EBITDA margin of 25%, and the marketing innovation expense impacted margin by approximately 500 basis points. This expense will not occur in the fourth quarter, and we remain on track to achieve our EBITDA margin target for the full year. We remain focused and confident in our ability to achieve our financial targets of approximately 10% revenue growth and 28 to 29% EBITDA margin range for the full year 2022. I'll turn to our key performance metrics in the third quarter. ArcDAO achieved a new record of 80 cents versus 69 cents, an increase of 16% compared to the prior year period, with a DAO base of 2.2 million compared to 2.3 million in the prior year. Average MPU increased 11% year over year, while average monthly revenue per paying user increased nearly $2 year-over-year to $95. This marks 10 consecutive quarters above $90, illustrating the traction we're seeing with our payers through our focus on retention. This resulted in record payer conversion rate of 9.7%, 120 basis points above our payer conversion rate of 8.5% in the prior year. Year-to-date, SidePlay has generated $95 million in operating cash flows. Cash flow in the third quarter was impacted by the $25 million legal settlement payment and working capital changes primarily due to the timing of platform collections. At the end of the third quarter, we had $299 million in cash on hand and no debt. Since the inception of our $60 million stock repurchase program beginning in May, We've repurchased approximately 28 million or 2.2 million shares of SidePlay stock for an average price of approximately $13 per share, reflecting activity through November 4th. Earlier, Josh touched on our operating discipline, which we stringently apply to investing in our business while also executing to achieve our targets. We have made significant investments in the challenging macro environments. We remain focused on executing our strategy and driving long-term shareholder value in 2023 and beyond. In conclusion, it is a very exciting time to be a part of SidePlay. We have an energized, execution-focused team with significant growth opportunities. Our vision remains to be the industry's leading mobile game developer and publisher.
spk03: And with that, I'll turn it over to Josh for closing comments.
spk14: Operator, if you could open the line for Q&A, that would be great.
spk08: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Matt Thornton with SunTrust. Please go ahead.
spk19: Hey, good morning, guys. It's Matt Thornton at Truist. Josh, I was hoping maybe you could tease apart how Elictus is performing in the quarter versus Legacy Web. I think that bucket was collectively a little bit better than we were thinking. And as we look forward, I guess, maybe some incremental color. I think on the web side of things, I would think the way to think about that is the launch of DTC will drive – margin and profitability in that bucket of revenue, but I'm definitely looking for some more color maybe on how you're thinking about Elictus a couple quarters into the acquisition. Should we continue to expect that to grow into next year or just your latest thoughts on how to think about Elictus in 23 and beyond? Thanks so much.
spk12: Yeah, thank you for the question, Matt, and it's great to talk to you. You know, for Elictus, we're making great progress. As we talked about last quarter, You know, with the challenges of IDFA, we needed to shift our strategy to really becoming an Android-first company when we launched our game. We spent a significant amount of time in Q3 working on building out this technology, making sure that it runs on the Google platform, you know, free of ANRs, free of crash rates. And we've seen really good progress with the release of the newest game, Barbershop 3D, Fade Master, which has really hit the ground running, even spent a little bit of time number one, which leaves us very, very positive into what we could see going into next year as we continue to launch a couple of games each quarter. At the same time, we are going to look at different ways of evolving as the hyper games casual genre has evolved as ways to retain players just a little bit more. And by retaining players just a little bit more, you add a significant amount to their LTVs. But I do want to, you know, it would be a hard thing to say is, like, everything we've seen in the positive movement forward in this very challenging market is because of the amazing team in Turkey. You know, Emory and Edgem have built a team that is, you know, top, number one in the class. They are intelligent. They are fast-moving. They are nimble. And it's their positive movements and creative thinking that has really, really allowed them to shift. and get back to a spot that you're starting to see hyper game genre get more and more downloads again. For your second question, you say web, and I'm going to take that as you mean our core business, or do you actually mean like Facebook web?
spk19: I was talking about the Facebook web bucket. Like I said, I think that collectively, web and advertising was probably a little bit better than we expected. Obviously, you just hit on the Ellictus side of it, so I'm curious about how to think about the legacy website because, again, I would think the DTC platform is very applicable there and could drive margins up in that business, but I'm not sure there's much else we should be thinking about there. Any color would be great.
spk06: Yeah, so I'll jump in here.
spk07: So when we acquired Ellictus, We basically recorded the revenue in what we call web and then categorized it as other. We're continuing to evaluate when electives become more material to where we need to break that out from an advertising standpoint. But the one thing I will say is our mobile percentage allocation in our revenues has been pretty consistent year to year.
spk12: And then as we continue to build our games out on the web platform, especially our core games, you are 100% right. They will be, you know, call it the low-hanging fruit for moving over to the DTC platform because they're already playing. They're already Facebook connected, and they're already playing on the web. So they'll be some of the first people and are some of the first tests to our DTC platform that are happening this quarter.
spk18: All right, that's great. I appreciate it. I'll jump back in the queue. Thanks.
spk12: Okay, thanks, Matt.
spk08: Our next question comes from Aaron Lee with Macquarie. Please go ahead.
spk05: Hi, good morning. Thanks for taking my question. So it's nice to see average revenue per payer up with the number of paying users up also. I would have thought more payers might have diluted that average spend. Can you talk about what's behind that dynamic and how you think that could trend going forward?
spk12: Yeah, thanks for the question, Aaron. It's good talking to you. You know, I think there's a couple of different things, but they all come back to the investments we're making and the stability of our core franchises and how they're behaving. You know, one is, you know, being able to use the SidePlay engine across all of our games as we're starting to implement it. We're seeing higher engagement And the higher engagement is giving us more time on app, and the more time on app is equaling not only more purchasers, but more purchasing per purchaser. And because of this, and then you add to that the health of the games for bringing in new users are generating the highest LTVs that we have ever seen as a company. the two things are adding together to drive up that monthly average revenue per paying user. Normally, what you would see is when you add new payers, it would bring it down. But because of the mixture of us increasing the LTVs and increasing the engagement, we're seeing a rise.
spk05: That's perfect. Great. And you continue to outperform the industry. And it seems like the internal investments you've been making this year are paying off. In terms of 2023, how should we think about any platform investments next year relative to this year in terms of magnitude or however you'd like to frame it? And what are the different buckets?
spk12: Yeah. So, you know, I think the buckets, to be honest, are relatively the same, but they're going to be more depth, but The one thing as a company that we're focusing on is any place where we can make an investment that will touch multiple titles at once. So we have the individual game teams that are developing their features and running the franchises as their own. But at the same time, we have this amazing side core team that is doing kind of like building out of the side play engine, building out of our data core, our side data capabilities, building out our side tech capabilities. And each one of these, when they release, are open to all of the games at once. So we're able to build once but get across the entire platform. We're going to continue investing heavy there. We're also going to continue investing heavy on our ad tech capabilities, which have given us the ability to really keep our CPIs in line throughout the entire year this year. And by keeping them in line but increasing the LTVs, we're starting to see, I mean, let's be honest, we're starting to see better than expected ROIs on all of our UA spend. And so putting both of these together and then at the same time looking at new game opportunities or new segments in the market where we think we have a competitive advantage in that we can build something that we can scale and win because we know how to run it better than everyone else, will be where you see us launching new titles and new sources of revenue in the next coming years. Fantastic. Thank you so much.
spk08: Very welcome.
spk14: Thank you, Aaron.
spk08: Our next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.
spk16: Maybe I can follow up on that last question and then ask an additional one. I hope everyone on the team as well. In terms of the investments you're making for the longer term, is there any way to quantify the headwind that that was to adjusted EBITDA in 22 or the type of headwind? It could be directionally in 23, so we can better understand maybe some of what the underlying earnings power is. that's being masked by those investments or that cycle you're in right now. That'd be number one. And number two, with the capital return policy, how should we think about that being measured against the ability to go out and possibly do some M&A and acquire additional scale or additional ad tech capabilities? How do you think about the rank order of ways in which you're thinking about allocating capital, especially since the broader environment has had such a Correction between public and private valuations.
spk12: Thanks Yeah, so let me let me start with the second question and then bounce back to the first so, you know internally we've always been very diligent with our you know capital allocation because we're always focused on what we believe will drive the long-term shareholder value and This is why when we started the year, we felt so confident in our internal investments because we do know that we own so many core franchises that have the ability to grow year over year over year. And the investments that we make there are always the highest return on investment because every dollar we make in our current games is a more profitable dollar than the next new game that comes out. At the same time, You know, we are acting, you know, very, very aggressively on our stock buyback program. You know, we put in a $60 million over two years. And within the first, you know, five months, we've almost gone through 50% of the $60 million. You know, for two reasons. One, we think our stock is very undervalued. And two, that it is a great return to the shareholders. So we'll continue to evaluate, you know, items like this and make sure that we are that we are acting on these. As far as the M&A world, I would say that M&A is something that we constantly look at and we've always been looking at it, but it isn't our first moment to invest in. Our first moment is the first two things I just talked about. It is our core game investment to make sure that we are going to consistently grow as a company. And then how can we get value to the shareholders? From there, we do. We go look at the market. We see how the evaluations are coming. But we're going to be as diligent as we always have. We're going to not stretch ourselves. We're not looking to buy revenue. We're looking to buy long-term growth and long-term shareholder value. And as the market continues to evolve, we'll continue acting like we always have because we want to continue running our business responsibly. For the next question, how do we think of the investments as a whole? I would think of them as something that we will continue doing forever because the side play engine will continue to evolve. Ad tech will continue to evolve. These are not things that you get to do once and just leave them sitting on the shelves. Every day you get new data, and this new data tells you some, identifies a new gap for you to be able to go after. And as you close these gaps, you change the long-term behavior of the player, giving them a better experience, and really, really focus on keeping them in our atmosphere, our environment, as long as we possibly can. You know, the mobile game world has changed pretty significantly over the last two years, and it has never been more important than it is today to focus on long-term retention. And this is what our investments are doing. They're focused on keeping our users playing our games and making sure that we're their first choice when they're looking for an entertainment value.
spk08: Really appreciate it, Josh. Thank you. Our next question comes from Franco Granda with DA Davidson. Please go ahead.
spk10: Good morning, everyone. Thanks for taking my questions here. I was hoping you could expand on your DTC platform. Do you plan on adding player-focused features that go beyond the experience in mobile and not just going to Cypher.com to play the games, or how should we think about that?
spk14: Franco, it's great to talk to you, man. How are you?
spk12: And doing great. Hopefully you guys are doing good too. Yeah, amazing. Yeah. You know, we could not be more excited about the opportunity of a DTC platform. You know, remember we're in the early stages right now. We're just going to do our first test here in the next couple weeks where we're going to select, you know, particular users that we're going to let them come in, start trying it out. And, you know, really it's about vetting out the technology. As we start to move forward and we start to feel like the platform is a stable platform that we're able to start growing, then we're definitely going to look at how do we improve the experience and make our DTC platform the greatest experience that we possibly can. Whether or not that is unique features to that, whether or not that's a unique unique content that is only on the DTC, or whether or not that's just a better experience over time. The great news is because it's a platform that we own, it is a platform where we 100% control the communication to the user, and it gives us the ability to enhance their experience. Now, I do want to set expectations. It's going to take time for us to grow into it. For the main reason, this is a brand-new platform, but these are customers that we own today, and they are customers that are part of our ecosystem. We do not want to lose a customer because we pushed them too fast to a platform that was not ready. So I would not expect it to be hugely material in 2023, but we will start to ramp it in 2023.
spk10: So you're saying two equity analysts to not get ahead of themselves. Seems like something we're not very good at.
spk12: Yeah, yeah. I mean, it's just ultimately like every new platform, whether or not it was when Windows launched or when Apple, Facebook launched, they're bugs. And you have to make sure that you're delivering the greatest experience you can. And for us, in this case, since they're our current players, it's even more important that we're giving them the best experience possible.
spk10: Absolutely. As a consumer myself, I can tell you experiences first. And then can you talk about Perhaps one of the last-minute changes that Spill Spinner still needs to go through before soft launch. I think you talked about that still being on track for this year.
spk12: Yeah, so we're very excited. There's been a couple of internal play tests. They've been amazing. The game looks fantastic. Right now, what we're really doing is we're focusing on the abilities that the game can scale. So this is the purpose of doing the tech test, which allows us to stress test the technology and make sure it has the ability to scale, you know, if and when the game is able to really pick up a lot of DAU. We want to make sure that it has the ability on a technology side to handle that. So, you know, when we say the tech test right now, What we're trying to do is stress test the back-end system and make sure that it's able to handle the communication needs of the player as they're interacting with the game.
spk10: And then if I may squeeze a follow-up to that. Can you go into detail perhaps around what the soft launch environment is today versus what you were seeing two years ago before ATT was enacted?
spk12: yeah so i mean in the soft launch world you're not seeing a huge difference in environment where we're going to see a huge difference in environment is when you go to ramp and you know the ramping is really going to be uh you know the effects of uh apple and idfa um you know two years ago As you would know being in you know as involved in the spaces I am it would not be unusual that someone would launch a game and spend You know three to five million dollars a month and really try to ramp that game very quickly in the first You know one to four months, even if it was unprofitable. They would still ramp it That world is almost impossible now with the cap that IDFA or Apple has put on its platform, which is 55% of the best users are on Apple. And so I think what you're going to see out of new games going forward is less of a straight up, but more of a metered ramp over time because of the cap to buying new users on that platform.
spk09: Awesome. Congrats on the execution once again.
spk12: Thank you so much, Franco.
spk08: Our next question comes from Benjamin Soth with Deutsche Bank. Please go ahead.
spk03: Benjamin, is your line on mute? Let's go to the next. The next question comes from Matthew Cost with Morgan Stanley.
spk08: Please go ahead.
spk20: Hey, everybody. Thanks for taking the questions. I have two. Just looking at the trends over the past year or so for users versus payers, users have been on a slight downward trajectory and payers have just continued to go up. payer conversion as a result has gone up quite a bit. And I guess, should we think about there being some sort of ceiling on payer conversion? How high can that number go before you hit a sort of equilibrium where you've got a smaller pool of non-payers feeding into the payers? That's question one. And then question two is, are you seeing any noteworthy differences in the behavior of your customers, of your gamers in casual versus casino games, especially as we go through this period of macro choppiness? Thank you.
spk12: Thank you for the question. So let me just say the first one. Yes. You know, especially in the social casino market, you tend to see, you know, DAU coming down over time where PPU is going up. You know, I can't really speak to how the rest of the world is doing, but, you know, speaking to how it is affecting us and what we're doing, most of this was a strategic shift in how we behave. We stopped paying attention to DAU and started paying attention to just number of payers that we have in the game. And so we shifted, you know, majority of our development to be focused on engaging features that would either keep payers engaged longer, give them better experiences, and also converting new payers. And then at the same time, you know, shifted our marketing efforts to be very payer focused. So, you know, we may spend a little higher on a CPI, but we have a higher percentage chance of getting a payer out of it. That still fits what our ROI metrics are. I think DAU is something in casual where it becomes something you really need to focus on. And so I think the difference between casino and casual as a macro environment, casino tends to be a little bit smaller DAU, but a higher percentage of payers. And then casual tends to be a higher DAU, but at less value per user. Now, both of them have great returns. They just get there a little bit different. So I think they're both very good genres to go after, and they're very similar in the fact that they're a simple core game surrounded by a meta. Oh, there was one other question. Oh, do I think there's a cap on PPU? Like, here's the way I think about it. In the last three years, we've increased our PPU by 50%. If I would have said we were gonna increase it by 50% three years ago, most people would not believe it. So do I believe there's a cap on it? No, I don't. I believe as we continue to learn more and more about our users and we continue to be able to invest in our side play engine, our ad tech and our data capabilities, we're going to be able to get better and better at predicting what the user needs on a given day. And we're going to be able to not only keep the current payer paying more days a week, but we're going to be able to convert more and more. So, you know, do I know what the ceiling is? No. But I do know in the industry world, there are gaming companies out there that have $1.50 to $2.00 ARCDAO. And it gives us a lot of hope that there is a ton of runway left for us to be able to continue engaging our users and therefore growing their monetization abilities.
spk08: Great. Thank you. Yeah, you're very welcome, Matthew. Our next question comes from Ryan Sigdale with Craig Hallam Capital Group. Please go ahead with your question.
spk17: Hey, Josh, Dan. Impressive outperformance. Just one question for us. Most of it's been asked here, but given the marketing innovation campaigns you mentioned in the quarter seem like some good early success there, but what do you have planned for Q4 and then into 2023? Yeah, so...
spk12: So in Q4, we actually have no marketing innovation plan. Our marketing innovation plan for 2022 was kind of a result of realizing what was happening with IDFA and us being able to pivot and find new channels. And the time it took to struck the deals put us in a situation where we did most of the spend in a very short period of time. With that now known and knowing that these are channels that we're going to look at, you know, all through next year, we've already planned on spreading it, you know, spreading it out more evenly throughout the entire year. So instead of seeing, you know, like 2 million one quarter and eight, seven or nine the next, you're going to see more of like two and a half, two and a half, two and a half, two and a half. Because we do believe that these are channels that have untapped players. that we're going to be able to bring into our ecosystem and have them as a game of choice for their entertainment needs.
spk13: Thank you.
spk03: You're very welcome, Ryan.
spk08: Our next question comes from Matt Thornton with SunTrust. Please go ahead with your question.
spk19: Hey, Josh. Maybe a couple quick follow-ups. On the DTC platform, can you remind us, I mean, is PlayTika the – the right benchmark that we think about or that you look at, or is there something else that you look at from a benchmark perspective? And then just secondly, if you look at the core Evergreen portfolio, obviously a lot of the heavy lifting of late has been done by the two largest titles. If you think about the remainder of the portfolio collectively, is there opportunity, again, through the side play engine, through, I think you alluded to Project All-Star previously, is there an opportunity to to drive outperformance or acceleration in that part of the portfolio? Any color there. Thanks again, guys.
spk14: Yeah, yeah. So here, give me one second.
spk12: Okay, so yeah. So I think, you know, Playtika and King or Activision are probably the two DTC platforms that are out there that you would say are, you know, kind of the, today, the gold standard. Our hope is to obviously challenge that and become part of that mix and part of that conversation. And I do believe that, you know, I think Playtika has announced, you know, they're in that 22 to 23% of total revenue a couple of times. So I do believe that is also something that we can shoot to over time. But do remember that they've been on that platform for almost seven years. So it's taken them a decent amount of time to get to that point because you want to be very slow and methodical about moving over the very valuable users to make sure that that experience is flawless for them. You know, as far as how to look at the rest of the portfolio, yes, I mean, Jack Hop Party had an amazing quarter, continues to be strong. QuickHit also has been just killing it three consecutive quarters in a row of growing revenue, and we're just seeing the engagement out of the roof. We spent the last couple quarters doing some investments inside of Goldfish to make sure that it is ready for our side play engine and being able to really optimize live ops and then make the tweaks needed to the meta features in order to push the boundaries. And we feel very excited about the growth of GFC going into 23. Also, at the same time, continue to invest in Monopoly, which saw much, much higher than industry growth in 2022. And then 88 Fortunes, as we continue to evaluate and also get it ready. We've started to work on making sure that this game is a much more international-based game as the brand 88 Fortunes is not just a U.S. brand, but is an international brand known across the world and has a high affinity in many markets. So We are very, very happy with our core franchises going into 23, and I think we have a lot of opportunity to see better than market growth across the board.
spk08: This concludes our question and answer session. I would like to turn the conference back over to Joshua Wilson for any closing remarks.
spk12: You know, we're at a very pivotal and exciting time, and I'm humbled to be part of such a dynamic, high-performing, and very talented organization. You know, I want to thank Daniel for being such a solid and steady business partner to the entire SidePlay company. And as our intern CFO, I'm grateful for everything you've done, and I'm even happier that he's going to continue to stay on as our VP in finance to help us lead our and make sure that we continue to run our business as steady as we possibly can. For those of you that are familiar with Jim Bombasi, you can understand our excitement on what it is going to be to have him join SidePlay on December 1st as our new CFO. We welcome Jim and we look forward to his contributions. Our team remains confident in our products and our ability to effectively execute our business strategy and consistently deliver exceptional results. With that, I will wish everyone a great day and turn it over to the operator to end the call.
spk08: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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