Playtika Holding Corp. (PLTK) Management on Q4 2021 Results - Earnings Call Transcript

Playtika Holding Corp. (NASDAQ:PLTK) Q4 2021 Earnings Conference Call March 1, 2022 8:30 AM ET

Company Participants

David Niederman - Vice President, Investor Relations

Craig Abrahams - President and Chief Financial Officer

Conference Call Participants

Matthew Cost - Morgan Stanley

Eric Handler - MKM Partners

Colin Sebastian - Baird

Stephen Ju - Credit Suisse

Drew Crum - Stifel Financial Corp.

Batya Levi - UBS

Michael Ng - Goldman Sachs

Aaron Lee - Macquarie

Clark Lampen - BTIG

Operator

Ladies and gentlemen. Thank you for standing by. Welcome to the Playtika Q4, 2021 Earnings Call. [Operator instructions] I would now like to turn the call over to David Niederman, Vice President of investor relations. You may begin.

David Niederman

Welcome to everyone, and thank you for joining us today for the fourth quarter 2021 earnings call for Playtika Holding Corp. I'd like to remind you that today's discussion may contain forward-looking statements including. Any such statements are not a guarantee of future performance but rather are subject to risks and uncertainties, some of which are beyond our control.

Any such 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 any forward-looking statements after this call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. We have previously posted an accompanying slide deck to our investor relations website on February 24 and will also post our prepared remarks immediately following the call.

Finally, we’d like to remind investors that we will not be providing any financial guidance on this call nor we will be addressing a press release published February 24 announcing that Playtika’s board of directors approved evaluating strategic alternatives for the company. We ask that participants on this call please restrict questions to topic regarding our fourth quarter and 2021 results.

With that, I will now turn the call over to Craig Abrahams, Playtika’s President and Chief Financial Officer.

Craig Abrahams

Thank you to everyone joining our call today. We closed out 2021 with strong momentum across the company. In the fourth quarter we grew total revenue 13.2% year-over-year. This resulted in full year revenue of 8.9% to $2.58 billion and adjusted EBITDA of $982.7 million, exceeding our prior guidance of $2.57 billion and $980 million respectively. We achieve these results by steadily executing our growth strategy and leveraging our industry leading LiveOps capabilities to grow our core game portfolio. Our casual portfolio grew 22% with Solitaire Grand Harvest and Bingo Blitz, leading the way with 56% and 22.4% growth respectively, demonstrating the power of our Boost technology and LiveOps platform to drive exceptional performance in our established games. While the casino portfolio was down 1.8% year-over-year, this decline came on the back of a very strong COVID driven 12.2% increase in 2020. Across the two year period, casino games grew at 5% compounded annual growth rate.

We ramped our expansion in new categories during 2021 with the acquisition of 80% of the equity of Reworks in August, and the launch of Wooga’s new games Switchcraft in October, as well as ongoing development work on two additional new game launches. The first full quarter revenue from Reworks’ Redecor Design Entertainment application helped our casino portfolio generate more than 50% of our total revenue in the fourth quarter, a milestone that demonstrates our ability to deploy our Boost technology and LiveOps approach across all gaming entertainment genres.

Turning to the fourth quarter, our revenue growth of 13.2% year-over-year was also a 2.1% sequential increase. The casual portfolio led the way with year-over-year growth accelerating to nearly 31.5%. Our casual games comprise 51.8% of revenue in the quarter. Solitaire Grand Harvest remained our fastest growing game was 60.1% growth is both DAU and ARPDAU continue to rise. The games migration to unity is tracking ahead of schedule with its rollout slated to begin later this month. June's Journey grew 36% year-over-year. Through the Boost platform we launched multiple collectible album promotions which resulted in June's Journey’s strong performance and record increase in daily payer conversion.

In the casino portfolio, revenue was down 2.4% year-over-year with growth in Caesars Casino and World Series of Poker offset by declines in Slotomania and House of Fun. We were encouraged by the response, we started to do events and products in the World Series of Poker application which drove monetization and together with enhanced user experience led to a steady increase in GAU in the quarter and 7.3% revenue growth on a sequential basis. Caesars Casino also realized increases in conversion are down as we launched new and improved events helping the game grow 7.1% year-over-year, which is a strong milestone in a game that recently celebrated its 10th birthday.

Now turning to our P&L, cost of goods as a percentage of revenue declined year-over-year from 30.3% to 28.2%. The shift is primarily driven by the percentage of revenue flowing through proprietary direct-to-consumer platforms to 21.7% of revenue, up from 15.5% in the fourth quarter of 2020. Our direct-to-consumer platforms continue to be a competitive advantage and strong source of margin for Playtika. I'd like to add a quick comment highlighting that we are now referring to our proprietary platforms as our direct- to-consumer platforms. Well, it's just a change of name, we felt an important and appropriate as it better describes what we've achieved, and more importantly, points to the future potential of this piece of the business.

Regarding operating expenses, our R&D, sales and marketing and G&A were all essentially in line with our expectations, as we continue to add team members to support our future growth plans, and invested in new user acquisitions and marketing campaigns. GAAP net income was $102.3 million, compared to $76 million in the prior year quarter. With a successful refinancing our debt in March of ‘21, we significantly lower our future cash interest costs. As such, we reduce the associated need to repatriate cash from our foreign subsidiaries. So we're able to reverse approximately $46 million in tax reserves to pay withholding taxes on future repatriated cash, adjusted EBITDA was $212.5 million, representing a margin of 32.7%. This compares to $210.4 million and 36.7% in the fourth quarter of 2020.

As of December 31, we had approximately $1.1 billion in cash and cash equivalents and $1.7 billion in available liquidity to fund growth opportunities.

With that, we'll be happy to take your questions. We ask that you limit your questions to the fourth quarter and full year 2021. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from Matthew Cost with Morgan Stanley.

Matthew Cost

Hi, thanks for taking my question. Good, how you doing? I appreciate you taking the question. So I guess for margins in 4Q so it's in line, certainly with the guidance that you gave it at 3Q but definitely down year-on-year down sequentially understanding you are not providing guidance for 2022. What were the drivers of kind of like the margins in 4Q? And should we expect as you mix more towards casual, that margins will be more in kind of like the low 30s rather than the high 30s range going forward? And then I have a follow up.

Craig Abrahams

Thanks for the question, Matt. As you mentioned, this was something that we had planned for in the fourth quarter. Obviously, with the execution in the fourth quarter, we exceeded our adjusted EBITDA guidance for the year, it was an investment quarter in growth, both in our people as well as in marketing and media expenses. There were several offline campaigns, several more than a typical quarter in the fourth quarter, which drove additional media expenses, both on production and media. So, listen, investing in our people definitely is a differentiator for us and R&D and in our technology. And so a lot of that showed up in the fourth quarter as we had planned. A lot of that media was, especially in the fourth quarter, and I'm not sure that necessarily set going for going forward. But we're not making comments on forward guidance.

Matthew Cost

Got it. That's helpful. And then just following up kind of along those lines, there was a comment in the press release about year-over-year CPI growth being up around 6% in 4Q and I think your commentary on the prior two calls has been that it was stable, I guess I want to get a sense, is it -- is that an acceleration in ECPI growth? And sort of what are you seeing in terms of the effectiveness of your advertising? As we kind of stabilized a little bit post IDFA?

Craig Abrahams

Sure. So in the past, we'd given commentary sequentially, right, because people were focused on giving IDFA what was happening on a quarter-to-quarter basis, obviously, with the holidays in the fourth quarter, sequential wasn't the right comparable. So we wanted to show year-over-year. We chose 5.8%, which we feel demonstrates our capabilities and everything that we've talked about in the past around our ad tech, our strategies around diversification of sources, leveraging offline campaigns. But I think as we really look at this new environment, post IDFA, it really highlights our capabilities, the fact that we are the best at live operations, the fact that we're able to have higher LTVs than anyone else within our genres and that gives us a competitive advantage in marketing, regardless of the landscape. And this is in many ways level the playing field and giving us an advantage around LiveOps. And so I think that's really why we gave that guidance and obviously will continue to execute quarter-to-quarter and as you can see by the results in the fourth quarter clearly validates our strategy.

Operator

Our next question comes from Eric Handler with MKM Partners.

Eric Handler

Good morning, and thanks for the question. I'm wondering if you could talk a little bit about the ramp of Switchcraft, and how that's doing relative to your expectations.

Craig Abrahams

Sure, thanks for the question. I think it's still too early to tell. Obviously, it's a unique offering one the Google pickup in Play Award, there's definitely opportunity for us to further optimize it before we put meaningful marketing dollars behind it. And so it's part of a larger strategy with a slate of titles that we plan to bring to the marketplace. And so, I think we'll obviously update when there's a material update, but as of now, continue to optimize.

Eric Handler

Okay, and then, as a follow up last quarter, last quarter call, you talked about infrastructure investments that were being made and Slotomania and Bingo Blitz, Bingo blitz didn't seem to have any negative impact from these investments, wondering if you could talk about where you are, with these gains in terms of how much longer the investment process will continue?

Craig Abrahams

Sure. So I think that the highlight around infrastructure investments was pretty unique to the third quarter in a title like Solitaire Grand Harvest, we made commentary that that's still undergoing a transition of go through end of March. But with that, we flashed January numbers to really highlight the strength of the portfolio and execution. And we're really past that situation we had, which is pretty unique in the third quarter, where we had a lot of infrastructure overlapping at the same time.

Operator

Our next question comes from Colin Sebastian with Baird.

Colin Sebastian

Thanks. Good morning, Craig. A couple of questions for me, I guess, first off a little more detail, maybe what's driving the increase in payer conversion and ARPDAU. I know, denominator and numerator, or maybe moving in different directions there. And then also just the Eastern European studios, I think Ukraine and Belarus, any disruptions expected from those operations would be helpful to know. Thank you.

Craig Abrahams

Sure. So let's start with Ukraine, given just the importance there in terms of what's happening and our hearts definitely go out to the people of Ukraine, obviously, the dynamic situation that we monitor in real time, most important thing to us is the safety and well-being of our employees, our thoughts and prayers are obviously with them. We continue to work on being in touch and ensuring their well-being, we've taken steps over the last few quarters to really geographically diversify ourselves across Eastern Europe and have implemented business continuity plans. In the immediate term, there's been no material disruption to our operations. And, obviously, it's a dynamic situation, but hasn't -- has not affected business ops to this point.

In terms of your question on conversion to head back, obviously, January was also continued execution up to 330,000 daily paying users. And, in light of a DAU being pretty consistent, conversion continues to get driven higher. It's really a testament to the technology of the Boost platform, and how the teams across the various studios across the company are leveraging Boost to really drive monetization conversion features to really deeply engage our players on a personalized basis. And I think that kind of growth and really highlights the differentiator between us and other competitors in the marketplace.

Operator

Our next question comes from Stephen Ju with Credit Suisse.

Stephen Ju

Okay, thank you. So it might be a bit early, but now that Redecor is part of the portfolio, is there anything you've learned from operating an app that's sitting slightly outside what you have been doing historically? And at the time of the acquisition, it also sounded like there's probably a greater opportunity to generate ad revenue there, given the exposure to the home decor category. So overall, how is operating this asset? The same and how is it different versus what you historically have been doing? Thanks.

Craig Abrahams

Hi, Steven. Thanks for the question. Obviously, we're still big believers in the gamification of entertainment applications beyond traditional games, Redecor came in at $32.4 million in the quarter ahead of our public guidance of $30 million. It's really demonstrates our ability to execute and gives us confidence towards to execute around gamifying applications. The integration is ongoing and underway. And everything is on track in terms of our thesis around entering this category.

Operator

Our next question comes from Drew Crum with Stifel.

Drew Crum

Okay, thanks. Hey, guys. Good morning. Last quarter, guys, you talked about Board Kings and some changes that were being made with the management team there. Any updates you can provide in terms of what you saw in 4Q? And I know you're not commenting on ’22 but historically, how is January performed relative to December now the metrics that you provide in the press release suggested sequential uptick month-to-month, is that in line with typically what you see historically, month-to-month? Thanks.

Craig Abrahams

Sure, Drew, thanks for the question. So yes, last quarter, we highlighted two games that had either delays or management changes, World Series of Poker was first. Obviously, that game, clearly had a great quarter and executed up over 7% sequentially. And things are strong there, January was the best month in World Series of Poker history. So clear execution as well trending into ‘22. Board Kings is also stabilized, revenue for the year was up 13%. And we're excited for what that team can do. And so, yes, I think that in terms of that strong execution by the teams, as we look at January, I look at just last year, first year public company, Q1 was also pretty strong as we had a strong roadmap in that quarter. And I think we previewed last quarter, as we talked about a strong roadmap in Q1. And so January, obviously demonstrates that.

Operator

Our next question comes from Batya Levi with UBS.

Batya Levi

Great, thank you. Can you also provide maybe margin contribution of Reworks in the quarter? And I think last time you spoke, you had mentioned that marketing expenses will ramp. So are we seeing that through the first quarter, or is there a little bit of a slowdown now? And maybe a final question on any change in incentive compensation plans towards the end of the year?

Craig Abrahams

Sure, thank you for the question. So in terms of Reworks, we don't break out margin contribution. We're not giving guidance on that on a go forward basis. And we're not commenting on ‘21 guidance. In terms of incentive plans, there's nothing that's changed in ‘21 versus than what's happening here in ‘22.

Operator

Our next question comes from Michael Ng with Goldman Sachs.

Michael Ng

Hey, good morning. Thank you very much for the question. I was just wondering if I could follow up on the question on payer conversion. Were there any particular games that did particularly well in terms of increasing payer conversion, and obviously, really strong numbers in the fourth quarter, and in January, or any elements of the Boost top platform that you'd call out that really helped with that payer number? Thank you.

Craig Abrahams

Sure. So, I think one of our core thesis around initially and during casual games was the ability to take our know-how to other new genres, and it's clear, you see by the growth across the casual portfolio, that we're firing on all cylinders in terms of how we're executing, and that's driving continued payer growth and monetization increases, which is driving that top line number, and then saw that continue into January as well at the start of the year. So I think there's no specific game call outs, I would say other than the casual performance is really driving those metrics.

Operator

Our next question comes from Aaron Lee with Macquarie.

Aaron Lee

Hi, good morning. Thanks for taking my question. One quick on marketing the second, I think one of your strengths historically has been the variety of EMEA sources you buy from, as well as the offline campaign that you guys do, you guys call that on the quarter. And I think you had the Billboard in Times Square recently. Have you noticed the cost of those offline campaigns increasing, perhaps as other companies look for ways to get around IDFA? Or have those remained pretty stable as well?

Craig Abrahams

Sure. So for us, I think it's a media mix. That shifting in terms of how we diversify our sources, obviously, in the fourth quarter, we had some of the larger campaigns. We had John Goodman with Slotomania, Ty Pennington with Caesars Casino, Penn and Teller with House of Fun, and doing things on television, the World Series of Poker. Dr. Phil with Bingo Blitz, Solitaire Grand Harvest. And so you saw a lot of offline campaigns in the quarter and a bit of a mix shift. But I think you'll see the benefits from that on a go forward basis as those brands get built. And you see those benefits over time versus performance marketing, it's more directly in the quarter. So I think that some of those benefits are getting a bit delayed from an ad spend happens, but it's more of a mix shift rather than a broad increase

Aaron Lee

Got it. Okay. Follow up DPUs were up in the fourth quarter which is great and encouraging to see it taking another positive step in January. Your prepared remarks, it seems like 4Q trends were mainly on the casual side. Was it the same story in the January numbers you gave? Or was it gains more broad based across your portfolio? Thanks.

Craig Abrahams

Sure. So I would say for January is pretty consistent with the execution we had in the fourth quarter.

Operator

Our next question comes from Clark Lampen with BTIG.

Clark Lampen

Thanks a lot. Good morning. Two quick ones for me. First, was any of the fixed costs growth that we saw in the fourth quarter related to some of the initiatives that you guys had talked about with building out Reworks in new categories, like fashion or auto and then second, on the marketing side, this might be a little bit too micro, but how important if you guys have been shifting budget mix around, how important that the channel like TikTok become. And if it is, sort of rising as a percentage of the mix. What are you seeing there conversion wise? Thanks a lot.

Craig Abrahams

Sure, thanks for the question. So in terms of Reworks, obviously, we are ramping up integration efforts and staffing up there really for execution around Design Entertainment. As of now, obviously, we have grander visions for other genres going forward. But the focus right now is integration and growth of Redecor. In terms of marketing channels, obviously, we're diversifying, we're using variety of influencers and other new channels as well. But we don't comment on the specific performance for any given category, obviously, it's competitively sensitive.

Operator

And I'm not showing any further questions at this time. I'd like to hand the call back to Craig for any closing remarks.

Craig Abrahams

Thank you, everyone, for listening in and we'll talk soon. Thank you.

Operator

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.