Thank you for standing by, and welcome to the Playtika Holding's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's program is being recorded. And now I would like to introduce your host for today's program, Mr. David Niederman, Vice President of Investor Relations. Please go ahead, sir.

Welcome, everyone, and thank you for joining us today for the third quarter 2022 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 this call. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. We have posted an accompanying slide deck to our Investor Relations website and will also post our prepared remarks immediately following the call. With that, I will now turn the call over to Robert.

Thank you, everyone, for joining our call today. In the third quarter, our casual games growth strategy continued to succeed. We saw excellent results from our casual games, which grew 14% year-over-year. These results demonstrate Playtika's superior technology, live-ops, and ability to optimize and grow revenue over the long term. Bingo Blitz is driving these results using advanced live-ops and new AI-based tools, which have the potential to create upside across our portfolio. Thanks to our strong marketing capabilities, Bingo Blitz has also become a compelling mainstream franchise, leveraging celebrities and music stars with marketing partnerships and is now the number one game in the Playtika portfolio by revenue. It shows that we are creating amazing entertainment experiences that our players love. I will now touch on our slot-themed games. The slot category is a mature, competitive market. Having said that, we are creating exciting roadmaps for 2023 that we expect to provide our players with unique innovative content. Finally, I'd like to introduce a new initiative I am passionate about, Digital Studio. This will be a new way of managing game studios. It is a sophisticated AI and Machine Learning tool that enables studios to run more efficiently using automation. This is something we are testing with our legacy titles and will talk about more in the future. In closing, I am excited and confident in our position and ability to win in this market. Playtika has a solid foundation in place for the long term: a diversified portfolio of top-ranked games, passionate long-term players enjoying our games over many years, a Direct-To-Consumer platform that is at scale and a strong competitive advantage, along with our data and technology-driven capabilities and approach to user acquisition, which allows us to be fast, efficient, and optimize resources. Finally, we have a strong financial position, with a healthy balance sheet to pursue growth opportunities. I will sum up by saying that we are excited to continue building Playtika and enhancing its position as a leading mobile games company. With that, I will now turn it over to Craig, who will provide more detail on our financial results.

Thank you, Robert. Revenue was $647.8 million, up 1.9% year-over-year. Regarding adjusted EBITDA, as our debt investors calculate a different EBITDA metric, going forward we will provide both credit adjusted and adjusted EBITDA. The difference between these two non-GAAP financial metrics is our management retention plan, which expires at the end of 2024, and M&A-related retention payments. Adjusted EBITDA was $230.7 million in the quarter, down 6.9% year-over-year. Credit adjusted EBITDA was $203.5 million in the quarter, down 6.2% year-over-year. Revenue across our Casual games grew 14.4% versus a year-ago. Junes Journey, from our Wooga studio, grew 32.5% versus last year, driven by strong conversion from The Vault feature in addition to new features implemented throughout the quarter. Solitaire Grand Harvest was up 14.3% versus a year-ago. Bingo Blitz grew 14.7% year-over-year driven by the Majestic Blitz promotion and very strong execution. This quarter, Bingo Blitz enjoyed amazing momentum and became the largest game in our portfolio from a revenue perspective. Casino themed games revenue for the third quarter was down 10.2% versus a year-ago. This was driven primarily by results in Slotomania and House of Fun, offset by positive results in World Series of Poker. Slotomania had a challenging quarter, down 12.7% year-over-year. This performance was driven in part by new features we introduced that did not resonate with our players. To address this, we plan to shift focus back to the core of the game, including better slot-style content, optimizing the game economy, and overall being more responsive to player feedback. We have a compelling feature roadmap built for 2023 and are making Slotomania a strategic priority for the company. House of Fun was down 21.2% year-over-year. As per our comments in Q2, we continued our strategy of cutting back on marketing and pursuing a more efficient studio model, ultimately aligning with the company's focus on overall adjusted EBITDA generation. As we evaluate the performance of this strategy, we have the potential to apply it to other mature titles as well. World Series of Poker performed well, growing 8.2% versus last year, driven partially by the World Series of Poker Main Event in July, which helped build awareness for the game. Looking at operational metrics, average daily payer conversion increased 60 basis points year-over-year to 3.4%, ARPDAU increased 16.4% year-over-year to $0.78, and average daily paying users increased 5.8% year-over-year to 310,000. Turning to marketing, the digital user acquisition environment continues to evolve, and costs per install have increased in the third quarter. As we look out to our plans for 2023, we will continue to increase marketing investment in our growth franchises while being disciplined and data-driven in how we allocate marketing capital. Our offline marketing campaigns have been a great method to offset this changing user acquisition dynamic to drive user growth and also showcase the brands of our games. We continued to partner with celebrities in the third quarter, including Drew Barrymore, Jane Seymour, Dr. Phil, and Jay Leno, among others. Turning to our P&L, gross margins were stable at 71.9%, up slightly from 71.8% year-over-year. Additionally, direct-to-consumer platforms were 23.3% of total revenue, up from 21.7% in the third quarter of 2021. Total operating expenses increased 10.7% year-over-year, primarily related to employee-related expenses. R&D expenses increased by 25.8% year-over-year, driven primarily by headcount growth and increases in compensation expenses for our employees, as we discussed on prior calls. Sales and marketing expenses increased by 3% year-over-year as we remained disciplined in how we allocated marketing dollars. G&A expenses increased by 6.5% year-over-year. GAAP net income was $68.2 million compared to $80.5 million in the prior year quarter. As of September 30, we had approximately $1.26 billion in cash and cash equivalents. Upon the closing of the tender offer in October, we used approximately $600 million of the cash from our balance sheet, excluding fees and expenses. Following the October transaction, our balance of cash and cash equivalents is approximately $650 million. Additionally, this will reduce share count in the fourth quarter by approximately 51.8 million shares, influencing per share measures. Our effective tax rate year-to-date was 30.2%. Regarding our financial outlook, despite a difficult market environment, we anticipate we will finish the year within the previously provided ranges for revenue and adjusted EBITDA. In closing, we are encouraged by the success we saw in our casual games and the continued innovation and creativity of all our teams as they strive to provide our players with the best quality entertainment. As I mentioned, we are working to stabilize revenue in our slots-themed games while operating them in an efficient manner. Looking to 2023, we will continue to invest in our strongest franchises to build on the momentum they have achieved. We are prioritizing our investments across our portfolio of games as we look to align growth and expense profiles. We will maintain our focus on free cash flow generation while continuing to drive growth in our successful casual titles and build on our leadership position in mobile games. With that, we would be happy to take your questions.

And our first question comes from the line of Matthew Cost from Morgan Stanley. Your question, please?

Good morning, everyone. Thanks for taking the questions. I have two. So just thinking about the divergence between the casual games and the casino games, obviously, the casual games are performing very well, and you mentioned some challenges specific to Slotomania. Is there a market-level challenge going on in the casino gaming market right now that you expect to turn at some point? And what should we be watching for to assess when that turn is going to occur? And then just on the marketing front, obviously, in the past, you've been very effective at sort of maintaining a flat or relatively stable effective CPI. You mentioned CPIs being up a little bit in 3Q. So I'm just wondering if there were certain channels where you were seeing more challenges or what drove the CPI up? Thank you.

Hey, thank you for the question. So first, Playtika is an amazing portfolio of games, and we actually proved in the past that we know how to change momentum of games that perform automatically, like Bingo Blitz six years ago, and WSOP two years ago. This is what's happening around Slotomania. We are building an amazing roadmap for 2023. We are excited about this roadmap. We believe in this roadmap. We believe we will stabilize the revenues, and this is our target. And regarding CPIs.

Sure. So in terms of CPIs, we've shifted focus for higher quality traffic and traffic sources and focusing more on ROI. I think that's really been helpful for us, and the fact that we have our scale, our AI technology, and how we buy traffic and our live-ops capabilities. I think those three things combined really give us an advantage in an environment where precision on buying traffic is so important.

Great. Thank you.

Thank you. Our next question comes from the line of Eric Handler from MKM Partners. Your question, please?

Yes. Good morning and thanks for the question. Robert, I wonder if you could just touch on your thoughts about new game launches. I know you had several in the pipeline; how you're thinking about that in this current macro environment?

Thank you for the question. So we launched Merge Stories in September. It was a solid launch. It's still early to know about the future of the game. It's not an easy environment to launch new games. This is not a surprise. We see it overall. In this world, we have another two games that we are currently exploring the event to launch them. I think in a quarter or two quarters from now, we will know exactly what the future of the new games is. But again, as we said at the beginning of the year, our focus is to have a game that does around $100 million, and this is the target of Playtika for new games. Till now, it's really hard for us to get an answer regarding Merge Stories, but I believe that in a quarter or two quarters from now, we'll have a solid answer.

Okay. And then just as a follow-up, I wonder if you could talk about sort of an update on the Redecor game?

So Redecor, as we said in the beginning, when we acquired Redecor, it's a project lasting 18 to 24 months. We made changes in the game. We built an amazing team in Israel. We brought talent from other studios in Playtika. I believe that during next year, we'll have a better view on the future of the game.

Thank you. Our next question comes from the line of Colin Sebastian from RW Baird. Your question, please?

Hi there, and thanks for taking my questions. I guess, first off, I know you guys don't really look at it this way, but on the decline in DAUs, do you have any concern over time around limitations, the DPU growth or revenue per DPU at the top of the funnel doesn't expand? And then second, I know there's a lot of divergence and performance by title. But are you seeing any specific areas where you're making changes to Boost? Are there areas where you're seeing some of those technology initiatives improve performance in some titles that can be applied to other titles? Any sort of visibility on using the technology platform would be helpful. Thanks.

Sure. Thank you. So in terms of DAUs, we've been focusing on higher-quality Tier 1 traffic. In doing that, you're going to see lower levels of DAUs in terms of daily paying users, which is the metric we focus on. You saw a 6% year-over-year increase, and stable at 310,000 quarter-over-quarter. So I think that is the metric in terms of the engaged payer base, and that's where our primary focus is.

So regarding the Boost question, I'm happy to elaborate more regarding Boost and Digital Studio because at the end of the day, when we announced Boost two years ago, it is a platform to share knowledge of new features and content between the apps, and it's working amazingly. The Digital Studio, the next level of Boost, is how we're going to operate our games in the future. It will leverage AI technology to make the operation and livelihood much faster and much more efficient than we're doing today. At the beginning of next year, we're going to elaborate much more about it, and we'll share more information. This is one of our best and most interesting projects.

Okay. Thanks very much, guys.

Thank you. Our next question comes from the line of Stephen Ju from Credit Suisse. Your question, please?

All right. Thanks, guys. So I think, Robert, you touched on this in your prepared remarks, and I think there was also a recent interview with Eric talking about the acquisition opportunities out there. You have to think that versus the pandemic environment when every studio out there was probably flush with business, we're probably looking at a different situation now. So can you talk about the current environment and whether those conversations may or may not be accelerating? Thank you.

Sure. Thanks, Stephen. The M&A environment continues to be competitive. I think everyone acknowledges that mobile gaming is the biggest gaming platform within video games. In terms of the investments and M&A opportunities we are evaluating, there continues to be a variety of interesting opportunities in the marketplace. I would say that there continues to be a divergence between private markets and public company valuations. But that being said, post-tender offer, we have $650 million of cash in our balance sheet, along with $600 million in the form of a revolver. We definitely have the capabilities and capacity to continue to execute on transactions, and we're focused on that as we look to add world-class IP to our portfolio.

Thank you. Our next question comes from the line of Clark Lampen from BTIG. Your question, please?

Hey, guys. Good morning. I wanted to ask a question around directional trends in light of, Craig, I think you characterized the market environment as difficult right now, which is certainly in line with what a lot of peers of yours are saying. But what did you see? I guess, last quarter, you gave us some helpful color on monthly progression noting May and June were a little weaker relative to April, but that July performance had sort of uptick. Did you see improvement relative to July? And how has sort of 4Q started off relative to that end-of-quarter exit rate?

Sure. Thanks for the question. We're not going to comment on kind of monthly trending. What I would say is that we're proud of our execution in light of the market conditions, being able to stay within the range. I would say that both revenue and adjusted EBITDA probably will end up more towards the bottom end of the range. That being said, especially as it relates to the expense structure, some of the R&D projects that we anticipated this year ended up being projects that get expensed versus capitalized. So our CapEx guidance for the year previously was $140 million. It will now be $125 million to $130 million. There will be a neutral effect from a cash flow perspective, but a change that affects where we end up in the range.

Okay. And your direct business has also been growing year-over-year in terms of mix. I think you're up to about 23% or 24% right now. Do you believe that, I guess sort of traditional channels of distribution with mobile and app stores are under pressure? If that is the case, perhaps we're looking at maybe a medium to long-term slower growth environment, that might be a little bit too much of a stretch, but I'd be curious if that is something that maybe is coming over time. Does that change your view around sort of long-term mix or the opportunities associated with direct and third-party channels and maybe driving the former a little bit higher? Thank you.

Direct-to-consumer has always been a strategic priority for us. As you referenced, it’s currently 23.3% of the business. Other than Bingo Blitz, none of our casual titles are yet on direct-to-consumer, so we do see opportunities to give our consumers more choices. With that, we'd hope to see growth as well. I think for us, nothing has changed strategically with that. It continues to be a competitive differentiator for us.

Thank you. Our next question comes from the line of Eric Sheridan from Goldman Sachs. Your question, please?

Thanks so much for taking the questions. Maybe two, if I can. Just coming back to the concept around improving monetization within the slots performance. Is that a couple of quarter initiative? Or do you think it could take upwards of six to 12 months? How should we be thinking about the timeline of improvement, and how much of that is in your control in terms of just game optimization versus elements where there could be potential headwinds from external factors like the broader macro environment or consumption environment? That would be number one. And number two, I know you referenced having over $600 million in cash on the balance sheet now post the tender offer and talking a little bit about the potential for acquisitions with the wider spread between public and private. But how should we think about the rank order of priorities for that cash as you look out over the next 12 months in terms of where you think the greatest potential for ROI in deploying the balance sheet is? Thanks so much.

Regarding the first question, Slotomania, as I said at the beginning of the call, we're focusing on 2023. This is the year now that we are going to stabilize. We have an amazing roadmap, like I said before, and this is the top priority of Playtika Slotomania. As I mentioned, we had cases in the past of games that didn't perform well, and we changed the momentum and grew them. Look at Bingo Blitz; it has become the number one game in Playtika today, so I'm very optimistic about it.

Thanks, Eric. In terms of your second question on M&A, it's always been a strategic priority for us. If you look at all of our top titles today, other than Slotomania users casino, they came through acquisition. It will continue to be a strategic priority for us and rank order quite high in terms of how we intend to prioritize.

Thank you. Our next question comes from the line of Douglas Creutz from Cowen. Your question, please?

Hey, thanks. A couple of questions. First, can you give me a sense of what the revenue currency headwind was in Q3 and what you think it could be in Q4? Secondly, you talk about difficult market conditions, and we've heard this a few times. Can you be a bit more specific about, is that on the monetization of engagement side, the engagement of user side, or the ability to grow the DAU side? And maybe can you talk a bit about, there's been a pretty big spread of performance between the companies in Q3 and talk about why you think that is? Thank you.

Sure. So on the first question, FX, as you know, is about 70% of our business today in the U.S., and 30% outside the U.S. There were tailwinds to revenue from the FX impact. Some of that was offset by the fact that we employ so many people in Israel, Europe, and Eastern Europe, and obtained some benefit outside of what was hedged. But the net overall effect was definitely a tailwind—sorry, it was a headwind in terms of the overall impact from FX. In terms of the market conditions, obviously, there are a few things that we've referenced in the past. The fact that CPIs are increasing in the marketing environment more broadly has been challenging. I think we've navigated the market better than what we've seen in terms of other public data, given our strong overall portfolio. I think the evergreen nature of the franchises we have, particularly the casual titles, has driven that outperformance, and our live-ops capability is really what differentiates us.

Great. Thank you.

Thank you. Our next question comes from the line of Jason Bazinet from Citi. Your question, please?

I just had a question on these healthy payer conversion rates, which were in the high-1s, then low-2s and the mid-2s and high-2s, and now we're approaching sort of mid-3s. Can you just talk a little bit about how much of that is a function of Boost, how much is a function of going after higher-quality traffic, I think was the term that you used? And what's a reasonable ceiling for how high that number can go?

Sure. Thanks for the question. I think as we've looked at in the past, we've made statements that we've looked at our most mature franchises and observed the conversion levels there. That's given us visibility and confidence that we can grow the conversion rate over time in the more newly acquired titles by leveraging our live-ops know-how and bringing people the right content at the appropriate time. I think that is where a lot of our focus comes in, to continue to drive that daily paying user number over time.

Okay. Thank you.

Thank you. Our next question comes from the line of Omar Dessouky from Bank of America. Your question, please?

Hi, team. Thanks for taking the question. So if I were to assume that advertising revenue was similar to the first and second quarter, it would seem to suggest that implied revenue per daily paying user is a little bit down quarter-over-quarter. First of all, is that the case? And second, if it is the case, is that driven by seasonal factors or more driven by reductions in spending across the board? Are you seeing any changes in behavior? Or is it driven by the mix of gamers, where maybe higher spending gamers are less active or lower spending gamers are more active within that number?

Yes. Omar, thanks for the question. I think it's more driven by the performance of our portfolio week-over-week. If you're looking at a slight sequential decline quarter-over-quarter, it was driven more by the slot titles, both Slotomania and House of Fun. I think that correlates more to that than any other broader trends. As you've seen, we had very good quarters from both Bingo Blitz and Solitaire Grand Harvest sequentially driving real growth. So it's challenging to identify a broader market trend in light of such strength within the portfolio.

Great. Thank you.

Thank you. Our next question comes from the line of Franco Granda from D.A. Davidson. Your question, please?

Hi. Good morning, everyone. I was wondering, have you noticed any difference between some of the newer cohorts that you're acquiring through your offline campaigns and those from conventional UA, particularly any commentary around LTV curves, D7, D30 retention, etc.?

Nothing notable that we can comment on in this call. I think the power of the offline campaign is that it further reinforces the brands. We've seen it truly elevate Bingo Blitz, which is now the number one title within our portfolio with distinct entertainment personalities, creating a halo effect around it. I think the benefits there are more qualitative in nature and help with the diversity of how we acquire traffic. But nothing specifically we'd call out regarding the cohorts.

Okay. No, that's helpful. And then recently, you've been reorganized in your company and shuffling some games around some of your different studios. Where are you in that journey? Can you share any progress report of sorts with how that's gone internally?

No, I think as we've noted before, some games like Redecor and Best Fiends are now being managed out of our headquarters in Herzliya. There's no update other than the teams continue to get up to speed and execute on their business plans.

All right. And then one very last one, if I could just squeeze one in. Can you give us more color around that digital studio initiative that you talked about with your AI tools? Any color around the logistics and how that would work?

Thank you for the question. I cannot provide more details than what I said before. I can only say that this is going to be a meaningful initiative for Playtika in the future. This is how we're going to operate our games. This is how we believe the world is going to look. As I said, we're going to elaborate more about it at the beginning of the year, and it's going to be amazing for us. Thank you.

Thank you, guys.

Thank you. Our next question comes from the line of Aaron Lee from Macquarie. Your question, please?

Hi. Thanks for taking my question. I apologize if I missed this; I got dropped from the call. But do you still see any macro impact on consumers and their willingness to pay? Last quarter, you had talked about, May and June looked a little weak, but things had improved in July. We have heard from some companies that called out macro weakness in Q2 that it didn't really play out as they feared. So just curious what you're seeing in the consumer and the health of consumer.

Thanks for the question. What we're seeing is that it really varies by genre category, so it's hard to make an overall statement about the economy driving any one result. We have seen the real strengths throughout the casual portfolio, and great execution there in the quarter. Meanwhile, it is softer on the slot-themed games. So we cannot summarize that there is one trend overall; instead, we believe we're proud of the results we had in the quarter amidst the market data that we're seeing.

Got it. Thanks. As a follow-up, are there any economic indicators you look at to inform your view of how you think players will behave, whether that's in GDP growth or the stock market, unemployment, anything that could be considered a leading indicator?

Nothing I would note.

Thank you. This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.