Playtika Holding Corp.
Q1 2021 Earnings Call Transcript

Published: 11 May 2021

[Company Representatives:]

Robert Antokol - Co-Founder and Chief Executive Officer Craig Abrahams - President and Chief Financial Officer Eric Rapps - Vice President of Corporate Development Troy Vanke - Chief Accounting Officer David Niederman - Vice President, Investor Relations

[Operator:]

Good day! And thank you for standing by. Welcome to the Playtika's First Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. . I would now like to hand the conference over to your speaker today, David Niederman, Vice President, Investor Relations. Please go ahead.

[David Niederman:]

Welcome to everyone, and thank you for joining us today for the first quarter 2021 earnings call for Playtika Holding Corp. Joining me on the call today are Robert Antokol, Co-Founder and CEO of Playtika; Craig Abrahams, Playtika's President and Chief Financial Officer; Eric Rapps, Vice President of Corporate Development; and Troy Vanke, Chief Accounting Officer. I'd like to remind you that today's discussion may contain forward-looking statements including but not limited to the company's future, anticipated future revenue and operating performance. These statements and other comments are not a guarantee of future performance but rather are subject to risks and uncertainties, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. With that, I will now turn the call over to Robert.

[Robert Antokol:]

Thank you, David, and thank you everyone joining us today. We had an excellent first quarter. We are very proud of our strong performance across the board as we started 2021. Let me provide some quick financial highlights for the quarter. Q1 revenues of $639 million were almost 20% year-over-year, driven completely by organic growth. Adjusted EBITDA of $258 million grew nearly 39% year-over-year. This impressive results were driven by our best in-class Live Operation, which is running our Boost technology platforms. This technology allowed us to keep growing our games despite their age. We believe we are the best at operating games for the long run, and the proof is our results, and here are a few examples. Bingo Blitz which is a 10-years old game and now is second largest game by revenue grew revenue over 40% year-over-year. We also boosted growth for our Board King game, which grew revenue nearly 57% year-over-year in Q1. Solitaire Grand Harvest has an excellent 60% revenue growth year-over-year in Q1, House of Fun enjoying a strong roadmap, which helped drive nearly 23% revenues growth in Q1. These results show how our company and model are different. We can take franchise that had been in the market for several years and continue to drive growth with proven road map and space that we control. Now let's look at some specific examples of Boost capabilities which we leverage in Q1. We have a powerful player journey pool that we use to drive improvement in both House of Fun and Solitaire Grand Harvest with excellent results. Player Journey allowed us to provide complex promotion, tailored to our player’s game behavior. Looking forward, we have a strong roadmap of additional capabilities enabled by Player Journey that we plan to implement this year.

[Craig Abrahams:]

Thank you, Robert, and I’d like to thank everyone for joining us on the call today. I’ll review some financial and operational highlights and then discuss our improved 2021 financial outlook. Following that, we will take questions. Playtika had an excellent first quarter, positioning the company for continued success through 2021. As Robert mentioned, the company is executing strongly across the board, from game feature development to Boost, to marketing and technology. Having a great quarter like this serves as an additional motivation and a proof point that we can exceed ambitious targets and set a new standard of leadership within the mobile games industry. Playtika benefits from a platform that is a combination of technology, experienced employees and owned IP that we believe give our company a competitive advantage. With this experience and the Boost platform comes the ability to know what features will work within a game, and more importantly, how and when to deploy those features. Additionally, when one game implements successful content, we can often take that concept to our other games and leverage that success across our portfolio. While we are focused on creating great game content for our customers, at Playtika we have a nuance perspective of how games work, that enables a more detailed level of analysis which ultimately drives monetization. Constant testing and measurement play a big part.

[Operator:]

Thank you. . Our first question comes from Brian Nowak with Morgan Stanley. Your line is open.

[Matthew Cost:]

Hi guys! This is Matt on for Brian. Thanks for taking the question. I guess just to start, you know you raised the full year guidance for top line well in excess of how much 1Q came in ahead of consensus. So obviously that kind of speaks to the momentum you guys have been going to the rest of the year. What gives you confidence that you'll be able to hold onto those users, continue driving conversion and sort of you know keep growing through the back half even as we hit the harder comps? Thanks.

[Robert Antokol:]

Hey, thank you for the question. So yes, the guidelines – when we are looking down the roadmap, so we have 11 games, none of them are top 100 grossing in the U.S. and we see the roadmap and we see how we started the games, and so we are really confidence about growing this year dramatically like we said. For Playtika, when you look in the last 11 years, for me always the first quarter is the most important quarter. We’re starting strong, if we’re getting total numbers, if we have a strong roadmap, so I’m feeling really confidence about the rest of the year and this is exactly why we raised our guidelines.

[Matthew Cost:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Stephen Ju with Credit Suisse. Your line is open.

[Stephen Ju:]

Okay, thank you. So talking about collection, that you guys have about eight games brewing in the pipeline. Any updates you may be thinking about to that number or potential soft launches or release dates? Should we continue to assume that these are not part of your near-term plans as well as your physical year guidance? And secondarily, it looks like your monthly active user decline is coming off the spike last year have turned the corner, as have the daily paying users. So does the guidance parameters speak in ongoing sequential growth from here. Thanks.

[Craig Abrahams:]

Sure. So, hey Stephen, good to hear from you. So in terms of our guidance, that is our organic business plan, it doesn't include any new game launches for the year, it doesn't include any potential M&A. So as you think about games, you know we guided as part of the roadshow that we’ll have one new game in 2022 with a global launch. So you know the guidance doesn't suggest anything in ’21. In terms of the KPIs, you're right. We saw some great sequential growth in DPUs, and engagement. And as the guys were coming out stay-at-home, we're continuing to see our mobile game users engaged and feel very excited about the KPIs that we're seeing and we expect to continue to see that engagement throughout the year as we continue to execute on our road map.

[Stephen Ju:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from Colin Sebastian with Baird. Your line is open.

[Colin Sebastian:]

Great! Thanks everyone. Good morning and good afternoon. Nice quarter once again. First off, maybe just to follow-up to the second question from Steven. Just on the social casino side or maybe Slotomania specifically, just curious how the game performed in Q1 and if you're seeing any impact on usage or engagement with the end of lockdowns. And then secondly, in the press release you talked about an impactful marketing campaign, helping to drive growth. If you could talk about those initiatives and as it relates to UA more broadly from Facebook and other platforms, if you're seeing any impact on app downloads or retargeting from apple's privacy enforcement. Thank you.

[A - Robert Antokol:]

Hey, thank you for the question. So regarding Slotomania we have a very strong quarter. It’s just everybody ask us about Slotomania. Its 11 years old game and includes this quarter 8%. So it’s a lot for a game that’s running more than 10 years. We have a strong roadmap as I said today, before in my first question. We have a really strong roadmap and especially Slotomania, a new feature. We add Slotomania to the group's platform, so we’re getting a more new feature for others against the Slotomania and feel really confident about it. Regarding the UA, we don't see any changes in the last few weeks, few months. Everything looks the same. We're doing very well with very good returns and till now we don’t see anything that can impact the business or anything that really changes.

[Colin Sebastian:]

Alright, thanks Robert.

[Operator:]

Thank you. Our next question comes from Drew Crum with Stifel. Your line is open.

[David Pang:]

Hi! This is David on for Drew. You guys had really strong gross margins for the first quarter. What drove the improvement in 1Q and is this level sustainable?

[Craig Abrahams:]

Sure, thanks for the question. So in terms of gross margin we had some improvements in terms of percentage of revenue from our proprietary platforms as our CNR 10-Q that was just filed, that is up 18% of our gross revenues, up from 15.5%. So I think with that you'll see the improvements in gross margin and I think as we go throughout the year, what we intend to do is sort of see similar percentage of revenues from those platforms as well, so we expect that to continue. I think on an overall margin perspective you'll see in our guidance, we guided to 38.5% adjusted EBITDA margins. That's up from our prior guidance for 37.7% EBITDA margin, and so I think while we had over 40% margins in the quarter, we expect some increased costs throughout the year and get to a blend of 30.5% by year end.

[Operator:]

Thank you. Our next question comes from Doug Creutz with Cowen. Your line is open.

[Doug Creutz:]

Hey, thank you. It seems that Q1 digital advertising was very strong across the industry. I’m just wondering what kind of trends you saw in terms of customer acquisition costs? If CPIs were going up or if they remained pretty stable. Thank you.

[Craig Abrahams:]

Yes, so in terms of overall marketing costs for us, I think everything was pretty consistent. We didn't see any trends worth noting; nothing stood out in that perspective.

[Doug Creutz:]

Okay, thank you.

[Operator:]

Thank you. Our next question comes from Eric Handler of MKM Partners. Your line is open.

[Eric Handler:]

Good morning and thank you for the question. I was wondering if you’d just give some thoughts, what you're seeing right now in the M&A landscape. How – is there a lot of activity going on and you know what’s – how are you thinking about things these days?

[A - Robert Antokol:]

Sure. No, we’re excited about the M&A opportunities in front of us. We feel really good about the pipeline and where we sit today. Obviously we fixed our balance sheet as well over the quarter. We now have $1.5 billion of liquidity to support M&A. That includes a $600 million undrawn revolver and about $1 billion in our balance sheet. So you know we feel very encouraged and there's nothing to update specifically on today, but we'll update when there is something to report on. But I think there's a lot of activity in the market and we feel good about the pipeline.

[Q - Eric Handler:]

Thank you.

[Operator:]

Thank you. Our final question comes from Jason Bazinet of Citi. Your line is open.

[Jason Bazinet:]

Good morning. I was just wondering if you could share your perspective on some of the shifts that seem to be going on in the broader landscape, meaning some of the traditional – I’ll call them platform companies that did you know – ran out on out networks or did that remediation or app attribution are sort of moving into the gaming business itself, and I just wonder, you know what do you think is driving that and what implications are there if any for your business? Thanks.

[A - Craig Abrahams:]

Sure. Thanks Eric. So we won't speak to competitors’ strategies and why they may be entering the game space. You know we have a great business model and we've been executing on it for the last 10 years. We feel really good about our plans for the next 10 years and you know we'll keep executing on our strategy.

[Jason Bazinet:]

Just qualitatively, do you feel like you guys are sort of ahead and you own the IP in the actual games, like that's the harder part of the business.

[A - Robert Antokol:]

You know I think we’ve talked about this in the road show. We have some structural advantages. You know we own our own electoral property. We don't have a distinct advantage in Israel. We have a great strong R&D workforce throughout Eastern Europe. We have nine leading franchise in the top 100 able to cross pollinate learnings from one title to the next and leverage our Playtika boost platform. So I think our investments and technology and boost and the fact that we have such a well-diversified portfolio definitely gives us an advantage in the marketplace.

[Jason Bazinet:]

Thank you.

[Operator:]

Thank you. I’d now like to turn the call back over to Robert Antokol for closing remarks.

[Robert Antokol:]

So, thank you so much everyone for the call. To summarize everything, I really – I'm very excited about this quarter, about this year, about the road map, about the guidance, about our organic growth of 20%. It only shows how strong is Playtika and how as a competitor can grow dramatically year-after-year like we did in the last 11 years. So, thank you so much again for joining us and see you in the next call. Thank you, guys.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.