Playtika Holding Corp. (NASDAQ:PLTK) Q3 2023 Earnings Call Transcript
Playtika Holding Corp. (NASDAQ:PLTK) Q3 2023 Earnings Call Transcript November 8, 2023
Playtika Holding Corp. misses on earnings expectations. Reported EPS is $0.1 EPS, expectations were $0.21.
Operator: Good day and thank you for standing by. Welcome to the Playtika Q3 2023 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tae Lee, SVP of Corporate Finance and Investor Relations. Please go ahead.
Tae Lee: Welcome, everyone, and thank you for joining us today for the third quarter 2023 earnings call for Playtika Holding Corp. Joining me on the call today are Robert Antokol, Co-Founder and CEO of Playtika; and Craig Abrahams, Playtika's President and Chief Financial Officer. I'd like to remind you that today's discussion may contain forward-looking statements, including, but not limited to, the Company's 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 the call. We have posted an accompanying slide deck to our Investor Relations website, which contains information on forward-looking statements and non-GAAP measures, and we will also post our prepared remarks immediately following the 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: Good morning, and thank you, everyone, for joining our call today. Before we speak about our business and financial results, I would like to take a moment to address the current situation in Israel, which has affected us all. As you are aware, Israel has recently faced a tragic and senseless act of terrorism that has left our heart heavy with grief. Fortunately, I can report that all Playtika team members are currently accounted for and safe. However, it tense me to know that some of our colleagues are experiencing a grief for having lost loved ones. Our hearts go out to them, and we offer our deepest condolences and support. We are committed to ensuring the safety of our team, the success of our businesses and our unwavering support for our community.
We conduct significant operation in Israel and most of our senior management is based in our Herzliya office, with most corporate functions led from the U.S. We have approximately 1,100 employees in Israel which represents approximately 29% of our global workforce. As from this week, about 14% of our colleagues in Israel have been activated from the Israeli military reserves. As we continue to closely manage this situation, we have begun our business contingency planning, and we will make necessary adjustments as situation progress. Currently, our team members in Israel are mostly working from home with support from our colleagues across the global offices of Playtika. We have moved a limited number of employees from Israel to Poland and Romania to provide redundancy in case of situation in Israel escalates.
Our technology infrastructure stands as a critical pillar supporting the performance of our game, ensuring uptime and redundancy. Many of our games offered on our private clouds, which are maintained through two data centers in the U.S. and other data center in the EU, supporting corporate infrastructure. We want to emphasize that the Company with the history of operating in regions facing geopolitical challenges, we believe we are well prepared to navigate the challenges with the war in Israel. We remain committed to safeguarding our operations, our employees and the interest of our shareholders. We have faced adversity before, and we have always emerged stronger and more united. I will now turn it over to Craig to speak about the quarter.
Craig Abrahams: Thank you, Robert. Before we dive into the business and financial results for the quarter, I would like to highlight our recent strategic acquisitions of InnPlay Labs and Youda Games. Our acquisition of InnPlay offers an expansion into a new exciting Luck Battle genre with a growing player base. InnPlay is an Israeli-based company, known for the recently branded title, Animals & Coins. Animals & Coins is an emerging title with high-growth potential, and we structured the earn-out to be reflective of our goal to fuel this growth profile. This transaction is a testament that our footprint in mobile gaming hubs around the world continues to benefit us as we evaluate local M&A prospects. Earlier in the quarter, we also announced the carve-out acquisition of the Youda Games portfolio known for their largest franchise, Governor of Poker.
We are encouraged by the fact that we not only acquired this portfolio at an attractive multiple, but it is also EBITDA accretive on day one. This transaction has an earn-out structure in place to incentivize the team to maximize EBITDA contribution and focus on profitable growth. This transaction also serves as a testament to our proficiency in executing complex acquisitions. In this instance, we successfully acquired an asset of another business in a region where we lacked an existing footprint while enhancing our portfolio with a proven franchise. As we look to next year, we have a positive view of the M&A market conditions and remain committed to capitalizing on favorable opportunities. The robust free cash flow generation of our business model and large cash position enables us to self-finance our acquisitions, which is a competitive advantage in the current market environment.
Furthermore, I am also excited to highlight our recent partnership with Netflix, where we launched our internally developed title, Ghost Detective, a hidden object game built by our Wooga Studio. This is a significant milestone that represents our ability to deliver best-in-class entertainment experiences to global audiences across many platforms. Turning to our financial results. Our performance in the quarter was consistent with the seasonal headwinds we typically faced in the third quarter and is in line with our expectation for the industry to be flat to slightly down this year. For the quarter, we generated $630.1 million of revenue down 2% sequentially and 2.7% year-over-year. Net income was $37.9 million, including the impact of an impairment charge of $41.6 million related to Redecor, compared to net income of $68.2 million in Q3 of 2022.
Credit adjusted EBITDA was $205.6 million, down 4.4% sequentially and up 1% year-over-year. Our credit adjusted EBITDA margin was 32.6% in the quarter compared to 33.4% in Q2 and 31.4% in Q3 last year. We generated $161 million in revenue from our direct-to-consumer platforms, down 2.6% sequentially and up 6.8% year-over-year. Our direct-to-consumer business now makes up 25.6% of our overall revenues, down slightly from 25.7% last quarter. Turning now to our business results for the quarter. Revenue across our casual team games declined 2.1% sequentially and was flat year-over-year. The double-digit growth year-over-year in June's Journey and Solitaire Grand Harvest was offset by declines in other titles such as Bingo Blitz, Best Fiends and Redecor.
Bingo Blitz revenue was $149.7 million, down 4.3% sequentially and 4.6% year-over-year. While we saw slight declines in Bingo top line performance, we are confident in the long-term health and growth profile of this game. As the largest game in our portfolio, it was partially negatively affected by some of the largest and fastest-growing casual games in our industry, making substantial performance marketing investments. Bingo Blitz remains the number one game in its category with a strong community of dedicated and loyal players. Solitaire Grand Harvest revenue was $79.1 million, down 3.3% sequentially, off a record Q2 and up 13.7% year-over-year. While we experienced some normalization quarter-over-quarter, the studio experienced successful feature launches in September.
The main contributions being the release of Team vs. Team and the release of Pets. Shifting to our Social Casino Theme Games. Social Casino Team Games revenue declined 1.7% sequentially and down 6.6% year-over-year. Slotomania revenue was $141.9 million, down 1.9% sequentially and down 5.5% year-over-year. Despite the seasonal headwinds in the third quarter, we are encouraged to see sequential stabilization in Slotomania, and while Slotomania continues to decline year-over-year, we are encouraged to note that this pace of decline has moderated compared to prior quarters. We have started to invest more in marketing of the studio alongside content packages released in the quarter. Turning now to specific line items in our P&L for the second quarter.
Cost of revenue decreased 4.3% year-over-year, primarily due to an increase in revenues flowing through our direct-to-consumer platforms. Operating expenses declined 3% year-over-year. R&D decreased by 11.2% year-over-year. The lower R&D expenses were driven by savings in labor cost from our reduction in force earlier this year and savings from various discretionary operating expenses across the organization. Sales and marketing decreased by 1.8% year-over-year. The decline in sales and marketing expenses year-over-year was driven by reduced head count slightly offset by increased performance marketing and other marketing expenses as we look to be opportunistic in investing in our largest titles as we mentioned at the beginning of this year.
G&A expenses increased by 7.4% year-over-year. Savings across certain discretionary G&A categories were offset by a reversal in contingent considerations that we booked in Q3 of fiscal year 2022 regarding M&A retention payments related to the earn-out of our Redecor acquisition. On an adjusted basis, G&A declined by 6.9% year-over-year. As of September 30, we had approximately $878.2 million in cash and cash equivalents. Looking at our operational metrics, average DPU declined 3.5% year-over-year to $299,000. Average DAU declined by 6.7% year-over-year to $8.4 million, primarily driven by declining DAU, in Best Fiends, Slotomania and Redecor. Despite the decline in average DAU in Slotomania, we're encouraged to see stabilization in Slotomania's DPU in the quarter.
Our focus on Tier 1 DAU also contributed to the decline in average DAU. ARPDAU increased 3.8% year-over-year to $0.81. As for our financial guidance for 2023, we are revising our revenue range to $2.55 billion to $2.565 billion, and we now expect credit adjusted EBITDA between $825 million and $832 million. We expect capital expenditures of approximately $95 million. While we are focused today on our Q3 performance, it is important to acknowledge the current war in Israel and the potential impact to future business performance. The ongoing conflict is dynamic and highly uncertain. While we are not providing specific guidance for next year at this point, we want to make it clear that an escalated conflict may introduce various challenges that may impact our financial performance.
We will continue to adapt and respond as needed to attempt to ensure the best outcome for our company, our employees and for our shareholders. We kindly request that questions during this earnings call remain focused on our business developments and financial performance for the quarter, allowing us to provide you with the most relevant and important updates. Thank you for your understanding and support. With that, we'd be happy to take your questions.
Operator: [Operator Instructions] Our first question comes from the line of Aaron Lee of Macquarie.
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