Playtika Holding Corp (PLTK) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Playtika First Quarter 2021 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, David Niederman, Vice President of Investor Relations. Please go ahead.

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.

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 grew almost 20% year-over-year, driven completely by organic growth. Adjusted EBITDA of $258 million grew nearly 39% year-over-year. These impressive results were driven by our best-in-class Live Operation, which is run on our Boost technology platform. 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 10 years old game, and our second largest game by revenue grew revenue over 40% year-over-year. We also boosted growth for our Board Kings game, which grew revenue nearly 57% year-over-year in Q1. Solitaire Grand Harvest had an excellent 60% revenue growth year-over-year in Q1. House of Fun and enjoyed a strong roadmap, which helped drive nearly 23% revenue growth in Q1.

These results show how our company and model are different. We can take franchise that have been in the market for several years and continue to drive growth with proven roadmap and pace that we control.

Now let's look at some specific example of Boost capabilities that we leveraged in Q1. We have a powerful player journey tool 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 promotions tailored to our players' game behavior. Looking forward, we have strong road map of additional capabilities enabled by player journey that we plan to implement this year.

While player journey is one capability of our Boost platform, the platform itself enable us to quickly deploy successful features from one game to others. For example, in Q1, Bingo Blitz launched clans, which originally was in Slotomania. Tournament, which was originally in Solitaire, was launched in Best Fiends.

Another key area we are working on is AI. We have over 60 people in our AI team across Europe and Israel. Here is one example from Slotomania. We are seeing great results by enabling AI-powered content recommendation. With over 200 different machines to play, deciding which one to choose can be confusing. We are using AI-recommended the ones best suit to the specific player.

For 2021, we will remain focused in leveraging our strength in technology, data and analytics to continue to drive growth and innovative to our mobile game portfolio.

Finally, I would like to provide a quick update regarding COVID-19. As you may have read, business in Israel have largely reopened, and it has been great for our people to have the ability to work and to collaborate in person. Needless to say, we are following local guidelines in every country to ensure we protect our global workforce. The health of our employees is our top priority, and we will continue to do what is necessary to ensure that our people remain healthy, happy and protected.

Now I will turn the call over to Craig to discuss operation and financial results.

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 has a combination of technology, experienced employees and owned IP that we believe give our company a competitive advantage. With this experience in 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're focused on creating great game content for our customers, at Playtika, we have a nuanced 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.

Robert spent some time discussing our player journey and artificial intelligence capabilities that are a part of our Boost platform. The broad set of technologies within Boost enable us to drive continued growth even across our most mature franchises by increasing the level of complexity and sophistication of our games' features, their configurations and their deployment. Being able to organically grow titles that have been in the market for approximately 8 to 10 years is a testament to what makes Playtika special and separates us from the competition.

Turning to the performance of our game portfolios. Our casual portfolio had a tremendous quarter, with first quarter revenue growth of 30% year-over-year. Our casino theme portfolio continued to exhibit strong growth, increasing Q1 revenue 12% year-over-year.

Six of our top 9 games grew revenue over 20% year-over-year in the first quarter. Within our casino-themed games, World Series of Poker grew revenue nearly 23%. This performance is another example that underscores our ability to build and sustain long-lasting franchises powered by our relentless focus around Live-Ops and constantly deploying new content.

We saw notable growth in several games in our casual portfolio. Solitaire Grand Harvest and Board Kings led the way with 60% and 56.6% year-over-year revenue growth, respectively. We're incredibly pleased with this performance.

We had several examples of innovation and success in our casual portfolio in the first quarter. In Solitaire Grand Harvest, we launched the My Farm meta feature in which players grow farms while also playing Solitaire. Player response to this feature was also very positive.

Additionally, for our Board Kings franchise, we held a fourth birthday celebration with a week-long campaign featuring several promotions that drove a peak in engagement. We also launched a new missions feature with exciting new content for our players.

This is just a selection of highlights in many of the new features and content that we've added to our games. Our teams have extensive roadmaps for future content releases throughout 2021 and beyond.

I also want to highlight our marketing efforts, which are driving positive results. You may have seen our Solitaire Grand Harvest and Slotomania featured on the Dr. Phil show or heard the Bingo Blitz song performed by Luis Fonsi, who had the chart-topping hit Despacito, along with the Nicole Scherzinger from the Pussycat Dolls. Both campaigns have been very successful in driving awareness in game installations.

We also created a very fun commercial for Solitaire Grand Harvest featuring Verona Pooth, a well-known entertainer in Germany. This is helping us expand our user base in Germany and is a great example of improving our localization in non-U. S. markets. We plan to sustain this momentum with several new exciting marketing strategies we have planned for 2021.

Now I'll review our financial performance. Revenues for the first quarter of 2021 increased by 19.6% to $638.9 million from $534.2 million in the same period last year. On a geographic basis, the U.S. contributed 71% of revenues, with Europe and APAC contributing 14% and 8%, respectively.

As previously announced, we refinanced our debt in early March and further enhanced our capital structure through interest rate swap agreements in late March. These transactions allowed us to fix our interest expense over the next 5 years on over 40% of our outstanding debt and to secure approximately $80 million in cash interest expense savings on an annualized basis.

In Q1, we reported GAAP net income of $35.7 million versus net income of $35.8 million last year. First quarter adjusted EBITDA was strong at $258 million, representing a 38.6% increase over Q1 2020. Our Q1 adjusted EBITDA margins were 40.4%, which compares to 34.8% in the same period last year. This margin expansion was driven by the increase in revenue year-over-year and also the continued strong performance of our proprietary platforms.

As of March 31, we had over $1 billion in cash and investments, and we now have around $1.5 billion in available liquidity to support potential future M&A, which includes $600 million of undrawn revolver.

Finally, I'd like to update our financial guidance for the full year 2021. With our excellent first quarter results and encouraging momentum in our business, we are pleased to raise our guidance today. We now anticipate revenue of $2.6 billion, up $160 million from our prior guidance of $2.44 billion. Our new adjusted EBITDA guidance is $1 billion, up $80 million from our prior guidance of $920 million.

In closing, our Q1 performance represents a great start to the year, and we're optimistic that our continued investments in content, people and technology will set the stage for ongoing success for the rest of 2021 and beyond.

With that, we'd be happy to take your questions.

(Operator Instructions) Our first question comes from Brian Nowak with Morgan Stanley.

It's Matt on for Brian. I guess just to start, 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 on to those users, continue driving conversion and sort of keep growing through the back half even as we hit the harder comps?

Thank you for the question. So yes, we grew the guidelines. And when we are looking at our roadmaps, we have 11 games, nine of them are top 100 grossing in the U.S. And we see the roadmap, and we see how we started the game. And so we have really confidence about growing this year dramatically, as we said.

For Playtika, when you look in the last 11 years, for me, always, the first quarter is the most important quarter. If we're starting strong, if we are getting to our numbers, if we have a strong roadmap, so I feel really confident about the rest of the year. And this is exactly why we raised our guidance.

Our next question comes from Stephen Ju with Credit Suisse.

Okay. So it's our recollection that you guys had about 8 games brewing in the pipeline. Any updates you may be thinking about to that number or potential soft launches or release dates? Or should we continue to assume that these are not part of your near-term plans as well as your fiscal year guidance?

And secondarily, it looks like your monthly active user declines coming off the spike last year have turned a corner, as have the daily paying users. So does the guidance parameters speak in ongoing sequential growth from here?

Sure. So, Stephen, great 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, we guided, as part of the roadshow, that we'll have 1 new game in 2022 with a global launch. So 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 I think as we're coming out of stay-at-home, we're continuing to see our mobile game users engaged and feel very excited by 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 roadmap.

Thank you our next question comes from Colin Sebastian with Baird.

Great. Nice quarter once again. First off, maybe just a follow-up to the second question from Stephen. 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 for the question. So regarding Slotomania, we had a very strong quarter. Everybody ask us about Slotomania, it's 11 years old game. And it grew 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 before, on the first question, we have a really strong road map and especially in Slotomania, new features. We add Slotomania to the Boost platform so we're getting more now feature for other games to Slotomania and feeling 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 are doing very well. We have very good returns. And until now, we don't see anything that can impact the business or anything that's really changing.

Our next question comes from Drew Crum with Stifel.

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?

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 you'll see in our 10-Q that was just filed, that is up to 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, we intend to sort of see similar percentage of revenues from those platforms as well. So 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 with 37.7% EBITDA margins. 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 38.5% by year-end.

Our next question comes from Doug Creutz with Cowen.

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 are going up or if they remain pretty stable?

Yes. So in terms of overall marketing cost for us, I think everything was pretty consistent. We didn't see any trends worth noting. Nothing stood out from that perspective.

Our next question comes from Eric Handler with MKM partners.

Wondering if you could just give some thoughts to what you're seeing right now in the M&A landscape? How -- is there a lot of activity going on? And what's -- how are you thinking about things these days?

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 feel very encouraged.

I think 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.

Our final question comes from Jason Bazinet with Citi.

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 -- ran ad networks or did ad mediation or ad attribution or sort of moving into the gaming business itself. And I just wonder, what do you think is driving that? And what implications are there, if any, for your business?

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

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

I think we've talked about this in the roadshow, we have some structural advantages. We own our own intellectual property. We have a distinct advantage in Israel. We have a great, strong R&D workforce throughout Eastern Europe. We have 9 leading franchises 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 in technology and Boost and the fact that we have such a well diversified portfolio, definitely gives us an advantage in the marketplace.

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

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 guidelines, about our organic growth of 20%. It only shows how strong is Playtika, and how Playtika can go 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.

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