SciPlay Corporation

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.

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.

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.