Good day and thank you for standing by. Welcome to Playtika Q2 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Tae Lee SVP of Corporate Finance and Investor Relations. Please go ahead.

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

Good morning and thank you everyone for joining our call today. Before we dive into business and financial results for the quarter, I would like to highlight our recent announcement to acquire the Governor of Poker franchise. Over our history, we have successfully executed various acquisitions that have played an important role in establishing Playtika as an industry leader in mobile gaming. We are constantly searching for promising game franchises that we can optimize and monetize using our operational excellence and best-in-class live ops. Governor of Poker is a well-established franchise with a lower player base, generating most of its revenue from Europe. When combined with our unique expertise and tools in game operations, we see it as a good opportunity to further expand our leadership in the social poker market. Turning to our quarterly results. This quarter we generated net income of $75.7 million and credit-adjused EBITDA of $250 million, which marks 6.7% growth year-over-year. This demonstrates our focus on running more efficiently by continuing to invest in developing better tools and technology. As a result of our early investment in AI and the efforts of our teams, we are now strategically integrating these AI-driven tools into our studios, which should provide opportunities to support our margins in the future. In addition, we are seeing how our internally developed tools, combined with our industry-leading expertise in iBox, is creating new growth opportunities for our games while providing a platform to support any future M&A. I will now turn it to Craig who will walk through the financials and discuss the quarter in greater detail.

Thank you, Robert. Our performance in the quarter was consistent with our outlook from the beginning of the year where we expected the industry to be flat to slightly down. Throughout the quarter, we saw positive year-over-year revenue trends for our casual portfolio, whereas our social casino portfolio fell slightly below our expectations. Our casual portfolio now represents 56.8% of revenue, a new record for the company. Coming off strong sequential growth to start the year, we saw normalization in Q2. For the quarter, we generated $642.8 million of revenue, down 2% sequentially and 2.5% year-over-year. Net income was $75.7 million compared to $36.4 million in Q2 of 2022. Credit-adjusted EBITDA was $215 million, down 3.5% sequentially and up 6.7% year-over-year. Our credit-adjusted EBITDA margin was 33.4% in the quarter compared to 33.9% in Q1 and 30.5% in Q2 of 2022. We generated record revenues of $165.3 million from our direct-to-consumer platform, up 9.1% sequentially and 7.6% year-over-year. Our direct-to-consumer business now makes up 25.7% of overall revenues. Turning now to our business results for the quarter. Revenue across our casual games declined 1.4% sequentially and increased 3.7% year-over-year. This year-over-year growth was driven by strength in Bingo Blitz, Solitaire Grand Harvest and June's Journey. Bingo Blitz revenue was $156.3 million, down 1.8% sequentially and up 6.3% year-over-year. In the quarter, we saw positive results from Gems and cannon features released in May. This is a significant economy change for the game, as the focus of gems is to generate revenue through gameplay and the cannon feature is also an example of a gameplay enhancer that has resonated well with our players. As part of our global growth plans for Bingo Blitz, the studio achieved a significant milestone by successfully launching its market penetration campaign in Germany. The success of this launch can be attributed to its focus on in-game localization and a well-executed marketing initiative featuring Drew Barrymore. Bingo Blitz is the largest title in our portfolio and the number one game in this category, with a strong community of dedicated and loyal players and we are looking forward to the content release slate throughout the back half of the year. Solitaire Grand Harvest revenue was $81.8 million, down 4.2% sequentially off a record Q1 and up 26.2% year-over-year. While we experienced some normalization quarter-over-quarter, we saw sequential stability in the studio's most loyal players. The studio experienced successful feature launches including new seasons of My Farm 2.0, strong Easter collection monetization and the Special Set campaign addition. Shifting to our social casino theme games, Social Casino Theme Games revenue declined 3% sequentially and 9.9% year-over-year. Slotomania revenue was $144.7 million, down 1.3% sequentially and 9.9% year-over-year. We are encouraged to see Slotomania revenue stabilizing for the third consecutive quarter. Turning to marketing, as part of our digital studio initiative we also introduced an innovative AI-based solution, scaling up user acquisition for World Series of Poker on iOS. This new capability uses the new attribution framework of Apple's ATT, and allows campaign optimization amid the challenging marketing environment. After seeing strong initial success for WSOP, we plan to roll out this new user acquisition solution to additional studios by the end of 2023. Turning now to specific line items in our P&L for the second quarter. Cost of revenue increased 1% year-over-year, and operating expenses decreased 17.4% year-over-year. Profitable performance remains a core tenet for us. As a company, we prioritize profitability and operational efficiencies resulting in industry-leading margins and robust free cash flow. R&D decreased 19.9% year-over-year. The lower R&D expenses were largely driven by the reduction in force that we announced at the end of the fourth quarter, as well as provisions for certain retention bonuses that we had in Q2 2022. Sales and marketing decreased 7% year-over-year. Savings in sales and marketing expenses were largely driven by the reduction of user acquisition expenses in Redecore and new games. As we noted last quarter, we started to pull back on some of our UA spending in Redecore during the second half of 2022. G&A expenses decreased by 29.6% year-over-year. This was partly due to savings from the reduction in force, and primarily from certain provisions for contingent consideration that we had in Q2 of fiscal year 2022. As of June 30, we had approximately $955.1 million in cash and cash equivalents. Looking at our operational metrics, average DPU declined 1% year-over-year to $307,000 as we continue to focus on marketing efforts in Tier 1 markets. Average DAU declined 12.2% year-over-year to $8.6 million. ARPDAU increased 12.2% year-over-year to $0.83. As for our financial guidance for 2023, we expect to end the year at the low end of our full-year guidance of revenue and towards the higher end of our guidance for credit-adjusted EBITDA. We are revising our capital expenditures guidance and now expect capital expenditures between $100 million and $105 million, down from $115 million to $120 million previously. In terms of the M&A landscape going forward, we are witnessing an increasingly favorable market. With a strong track record of generating substantial free cash flow, we have the financial capacity to pursue value-enhancing deals. And as Robert mentioned, we are committed to focusing on our core strengths and executing value-accretive transactions that will drive long-term value for our shareholders. With that, we'd be happy to take your questions.

Thank you. We will now conduct a question-and-answer session. Our first question comes from Matt Cost from Morgan Stanley. Please go ahead.

Hi, everybody. Thanks for taking the question. Maybe I'll just start kind of right where you left off, Craig, on the increasingly favorable M&A market. Obviously, you executed a deal recently. It's the first one in some time not just for you, but kind of at the market level. I guess, what is changing that's making it more favorable like why lean in now? And has the playbook changed at all in terms of what you're looking to target in terms of M&A potential acquisitions? I think this is a casino game, which I think is a little different than what you've done in the past. And then I have one follow-up. Thank you.

Sure. Thanks, Matt. I think what we're seeing is that consolidation in the industry is continuing. We have a differentiated technology platform and live operations expertise that allows us to acquire established franchises and improve their operational metrics and therefore the business. And that's giving us an advantage in this type of a market. I think what we're seeing is smaller studios having trouble scaling given what's happening in the marketing landscape and that's an advantage for us. The fact that we did a carve-out also demonstrates our ability to do more technically complex transactions. And whether it's a well-established franchise or a high-growth studio, we have our eyes on a variety of opportunities, and we'll continue to be opportunistic in going forward and executing.

Great. And then just on the comment in the prepared remarks around the new user acquisition solution, I think you mentioned for World Series of Poker. Can you just go into a little bit more detail about what you're doing differently there? What the results of the new campaign? Where the new solution were? And then how long it will take to roll out to the rest of the studio?

Sure. Nir Korczak, our CMO will take that one.

So basically with the WSOP in Q2, we did have things also we launched a real team campaign and also we did the things with the iOS. So basically what we are doing there is leveraging our AI capabilities and our technology in order to have a prediction and to better understand the quality of the traffic that we are buying. We see good results there and we plan to apply these activities also to the rest of the game in the coming quarters.

Thank you.

Thank you. One moment for our next question. Our next question comes from Stephen Ju from Credit Suisse. Please go ahead.

Okay, thank you. So I think you had a pretty good jump in DTC revenue sequentially. So can you talk about which franchises or new game launches that might be driving the change in mix there? Thank you.

Yes. Thanks for the question. So as we said at the beginning of the year, we're going to add another two games to our network and this is going by plan. The growth is coming from our current obviously will be running there. Everything is by plan. As we said at the beginning, this is a very important focus. This is a big advantage of Playtika over our competitors and as we started this before, we are focusing and we are on track as we said in the beginning. That's it.

Thank you.

Thank you. One moment for our next question. Our next question comes from Omar Dessouky from Bank of America. Please go ahead.

Thank you for taking my question. I wanted to explore possibilities beyond your direct-to-consumer platform for gross margin expansion. Specifically, there have been discussions in the industry about subscriptions and mobile gaming portfolios that could potentially be included in subscriptions sold by third parties, as well as alternative app stores. Could you provide some insight into how Playtika's portfolio might align with these opportunities?

Thanks, Omar, for the question. So like we said in the last quarter, we really believe in AI. We started to invest in AI in 2016. We've been fueled up around it. And I know that everyone today is speaking about it, but we already started to implement our tools. And you see it in our margins and this is where we are focusing. We're building tools that will help our talent to focus on the important work. And the AI is supporting every activity that we're doing. We see a very good future for our margins if I'm speaking about the margins. Playtika was always looking at the margin while always looking at the EBITDA and building an efficient, stable, and strong business for the future. And I'm really happy that we see the results now. I'm really happy to see that all the buzzwords that we have been speaking about, Playtika is delivering the goods. And this is only the beginning of the efficient strong work to build better margins and better profitability for the company.

Okay. Thank you very much.

Thank you. One moment for our next question. Our next question comes from Colin Sebastian from Baird. Please go ahead.

Thanks. Good afternoon. Just wanted to ask a follow-up on the sequential drop in DPUs. Maybe you could talk about retention trends and games and maybe if there were specific decisions during the quarter made to focus more on operating efficiency. And if more broadly you're seeing any changes in sort of the customer acquisition landscape, obviously outside of the AI-powered marketing that you discussed?

Sure. Thanks, Colin. So if you look kind of last year Q1 to Q2 we saw a similar decline in DPU. So I think there's some seasonality there as it relates to kind of new user acquisition and efficiency there. I think the second component we've always talked about is DPU is well correlated with revenue and revenue normalized in Q2 after a very strong Q1. As we looked out to this year in terms of planning, I would say the biggest difference was focused on our biggest franchises and larger marketing budgets for titles like June's Journey, Bingo Blitz, and Solitaire Grand Harvest. Other than that, I think it's really focusing on execution. And as Robert said on efficiency and improving our margin profile.

All right. Thank you.

Thank you. One moment for our next question. Our next question comes from Clark Lampen from BTIG. Please go ahead.

Hi. Thanks for taking the question. Craig, I've got one on development. Sort of, following up on your commentary around AI-driven marketing efficiencies, those certainly felt pretty encouraging relative to what we were hearing about user acquisition challenges over the last couple of quarters. If you end up seeing the same benefits with other titles that you have with World Series of Poker, would that be enough for you to feel comfortable leaning back into new title development or launches if there's any sort of specific timeline that you can put around that? I think it would be helpful also.

Sure. Thanks for the question, Clark. So I think our focus really has been around using M&A as a platform to add additional IP to our portfolio rather than organic development, given kind of where we are positioned in the marketplace both from a balance sheet perspective and a capability perspective. I think as Robert mentioned, AI is helping us across all areas of kind of the customer life cycle from acquiring customers to retaining customers to monetizing customers. And so that benefit is going to accrue across the portfolio, and we'll see that in our organic titles in our portfolio plus in titles that we acquire. So I think that continues to be the playbook for us rather than organic development, although we do have some organic development still within the studios, but it's not something that we feel like we should press the gas on at this moment in time.

Got it. And maybe to follow up quickly on DTC. I know you've talked about two new titles coming over the balance of the year. As we think about the portfolio a little bit more broadly, are there titles of yours where maybe a DTC offering wouldn't work for some reason in terms of player experience, or is that on the table for every one of your games, I guess eventually?

First, we always look at the maturity of the games and the suite of the players they plan against and the loyalty. Of course, not all the titles will work the same, and we're not expecting everyone to work the same. But for sure, it will give an advantage. For sure, some of the revenues will work. And we are, as I said in the beginning, we're on track with our projection that we said and we're feeling very strongly about it. And again, this is a big, big advantage of Playtika.

Thank you.

Thank you. One moment for our next question. Our next question comes from Drew Crum from Stifel. Please go ahead.

Thanks. Hey, guys. Good morning. What does your outlook for the second half imply for casino in terms of the rate of decline? Should we see this business flatten out exiting the year? And can you comment on how Slotomania is tracking relative to your forecast? I think there was a comment in the prepared remarks that casino maybe underperformed a little bit in 2Q. So any comments on Slotomania would be helpful. Thanks.

Sure. So we've seen Slotomania continue to stabilize in terms of trends over the last three quarters. And I think as we talked about a couple of quarters ago, it was a key area of focus for us. And so I think we're pleased with that. Obviously, we're making some assumptions that we can further stabilize the rest of the portfolio there and make appropriate investments. And so it's an area of focus for us. And just as we've done it with Slotomania, we expect to do it with the rest of the portfolio as well.

Okay. Thank you. One moment for our next question. Our next question comes from Aaron Lee from Macquarie. Please go ahead.

Hey, good morning. Thanks for taking my questions. So you seem to have reached stabilization in some of your core games and growth in others. And you obviously have also recently announced the acquisition of Governor of Poker. And I believe you touched on this a bit in your comments around the M&A market, but maybe you could just give some more color on how we should be thinking about organic versus inorganic growth for 2024 and beyond?

Thanks, Aaron. We're not providing long-term guidance at this time. As we mentioned earlier, there are opportunities for us to continue being strategic in the M&A market, which we see as a significant opportunity moving forward. Governor of Poker is a great example of how we can integrate a well-established franchise and utilize our live ops and technology platform to enhance that asset. However, there is no additional guidance beyond 2023.

Okay. Fair enough. And then on the Governor of Poker acquisition, historically, I think it was your marketing and distribution and live ops that were the value add that you bring to each acquisition. So can you talk about the value add that you're bringing to Governor of Poker since I would imagine they're probably doing pretty well with marketing just given their prior advertising ownership. So is it really the live ops where you think you can be additive, or is it like past acquisitions where it's really all of the above? Thank you.

So thanks for the question. I think when you look at the Governor of Poker, it's a little bit early to say because we still didn't close the deal. But I think what we are bringing here is something that most of the companies don't have: the spending and experience of monetization in the operation of nine games that we're running today is something that you cannot even compare to what others have. So when we look at this company, we saw two important elements: first, a very stable and strong game that's been running for many years in a big community, and second, we saw a very strong team that can help Playtika, not only with this game but with other endeavors as well. So today, we're looking not only at what we can bring, but what we can learn from them. So this is a different change in our approach, and we'll come from stable businesses. We're looking for big communities. We're looking for companies that have strong teams that can help us with the challenges in the future.

Okay. Got it. Thank you, Robert. Thanks, Craig. Appreciate the color.

One moment for our next question. Our next question comes from Eric Handler from ROTH MKM. Please go ahead.

Yes. Good morning and thanks for the question. I wonder if you could talk a little bit more on M&A. As you look at deals, are you trying to fill in maybe some holes in the portfolio, or are you just looking at games that you think you can grow?

We are primarily focused on finding good deals that align with our perspective. We're interested in opportunities that make sense, especially now that prices have adjusted and the market is more conducive to making deals. Additionally, we are looking for strong, stable teams that can support us. We aim to expand our portfolio and increase the number of games in the top 100 grossing in the US. We seek more stability and strength, and we see numerous opportunities ahead. We are actively pursuing mergers and acquisitions and remain optimistic about our current situation and the future.

Okay. And then, just as a follow-up with the Governor of Poker, I wonder, what does Governor of Poker provide you that you maybe didn't necessarily have with the World Series of Poker?

First, actually, one of the main issues that Governor of Poker is not competing against the World Series of Poker is bringing something that we don't have, and it's localization. When you look at Governor of Poker, you have 19 centers that Governor of Poker is very strong in that we are not there. So together, with Governor of Poker, we will become the number one strongest Social Poker Club in the world. So for us, it's a win-win situation.

Thank you. One moment for our next question. Our next question comes from an unidentified analyst from Cowen. Please go ahead.

Hi. Regarding Governor of Poker, how significant is this title? What impact do you anticipate it will have on your fiscal 2023 revenue or EBITDA? Is this already included in your updated guidance? Thanks.

Sure. Well, given the transaction hasn't yet closed and will close later in Q3, and it's relatively immaterial to our guidance. It's baked into the guidance number we gave, but it's not a number we're disclosing at this time.

Got it. Thank you.

Thank you. One moment for our next question. Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead.

Thank you for taking my question. You guys talked earlier in the call about a framing of sort of industry growth being flat to down. I think one of the big investor debates continues to be, as we move further away from the pandemic, as we move further away from digesting some of the privacy changes that Apple made. What do you see potentially as some of the barriers to getting back to sort of more normalized mid-single if not low double-digit type industry growth that a lot of people thought was sort of the normalized level for gaming growth, and especially mobile looking longer term? Just curious your own perspective on that. Thank you.

Sure. I believe the focus should be on returning to transactions. Since we don't have a significant pipeline of new titles each year like many other gaming companies, we rely more on mergers and acquisitions for growth. Having not participated actively in the market while valuations were very high, we are now positioned to be more opportunistic and take advantage of the current market situation. Therefore, as we execute transactions similar to our historical approach since the company's founding, we expect to return to growth. This is how we envision growth in a more mature and consolidating market, and it is our plan moving forward.

Thank you.

Thank you. One moment for our next question. Our next question comes from Brian Fitzgerald from Wells Fargo. Please go ahead.

Thanks guys. Just a quick follow-up on direct-to-consumer really showed up this quarter. Anything changing in how you drive adoption of the DTC version of a game and how long it can take for that to be a meaningful contributor? And then, any updates to how you're thinking about the EU's Digital Markets Act and similar legislations and what that means for Playtika.

Sure. Robert will take that first question.

So now I hope you hear me. Regarding the first part of the question, nothing changed in what we spoke about DTC. We are on track. We are not changing anything. We're working the same. Again, we are really happy. I would say, again, it's our biggest advantage and the tool that we're going to use in the future, to drive more revenue, to drive more EBITDA, to drive more EBITDA margin, and better profitability. Regarding the second half, I think Craig will tell you.

Yes. There's nothing in terms of impact that is going to affect us in terms of guidance for this year and it's not on our radar right now.

Okay. Thanks, Robert. Thanks, Craig.

Thank you. I am showing no further questions at this time. So this concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.