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. 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.

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.

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 hearts heavy with grief. Fortunately, I can report that all Playtika team members are currently accounted for and safe. However, it pains me to know that some of our colleagues are experiencing 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 business, and our unwavering support for our community. We conduct significant operations 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 of 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 the situation progresses. 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 the 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 are offered on our private cloud, which is maintained through two data centers in the U.S. and another data center in the EU, supporting corporate infrastructure. We want to emphasize that the Company, with a history of operating in regions facing geopolitical challenges, believes we are well prepared to navigate the challenges posed by the ongoing conflict in Israel. We remain committed to safeguarding our operations, our employees, and the interests 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.

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 to the fact 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 face 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's 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, which are 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 was 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 costs 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 a reduced headcount, 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. General and administrative 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 Daily Payer User declined 3.5% year-over-year to $299,000. Average Daily Active Users 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 are 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. Average Revenue Per Daily Active User 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 on 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 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.

Our first question comes from Aaron Lee of Macquarie.

I wanted to touch on your acquisitions of Youda and InnPlay. Just at a high level, can you just talk a little bit more about the overall strategy there? And how much marketing support you tend to provide for these games? Just trying to better understand if the opportunity is more about revenue synergies or just running these games a little bit more efficiently.

Sure. Thanks for the question, Aaron. I think both acquisitions are very different. InnPlay is a growth asset where we see a lot of potential and a very interesting new genre; that's a title where we intend to ramp up marketing and invest to grow. If you look at the deal documents that were posted alongside the deal, you'll see that it was structured in a way to allow us to invest and grow that asset. I think when you look at a title like Governor of Poker and Youda Games, you're looking at a much more mature portfolio that's established and it's an opportunity to leverage our live ops expertise and further optimize and help grow that business. So one was more attractive on a relative valuation perspective, with a more mature franchise, and the other one is an asset that we'll continue to invest in and grow.

And I also wanted to ask about your user acquisition tools. You mentioned last quarter the AI-based solutions. Any color on the status or impact of those tools? Are they performing how you expected? Or do you think they might need some more refinement?

Thanks for the question. It's Nir Korczak, Playtika CMO. So basically, as we said before, this is an ongoing process that we're going to keep leveraging AI for internal tools. We do see some improvement in some areas, but we are continuing to test it parallel to the other tools. Going forward, we will keep using AI tools in our marketing activities on a daily basis.

Our next question comes from the line of Arthur Chu of Bank of America.

This is Arthur on for Omar. I have a question on the DTC platform. I think you guys probably already have the highest DTC penetration in the industry. A lot of your peers see your DTC penetration as a benchmark. I was just wondering how we should think about the potential for more uptake longer term? Do you have a longer-term target in mind? Anything that would help us think about that would be super helpful.

As we spoke a few quarters ago, we are always targeting 30% of our revenues. Until now, we are on target. We're growing this year, so we're feeling very confident about the future of DTC. This year, we are launching Solitaire and we are launching June's Journey, and we believe it will help to grow the percentage. This is a very powerful tool for Playtika. It’s a tool we started a few years ago, and it provides us a big advantage, not only in revenue but also in our ability to be more independent.

Our next question comes from the line of Eric Sheridan of Goldman Sachs.

I know it might be a little early to talk about next year. But in terms of what's being implied in terms of an exit velocity for the business, can you unpack a little bit of the elements of acquired games versus developed games internally? And how should we be thinking about the growth algorithm for the business exiting 2023, against maybe a broader view of what you think the end market or the industry might grow as we move into next year?

Thanks, Eric. Our focus continues to be executing on our largest franchises and investing for growth there. Solitaire Grand Harvest, June's Journey, Bingo Blitz, and reinvesting in Slotomania—continuing to be the number one slot game in the category. We're also working on reestablishing our leadership position in slots with our central slots strategy, capitalizing on the opportunity to cross-promote all of our titles with our best slot content, and then layer on M&A. We just did two acquisitions this past quarter. The market environment is such that higher interest rates are depressing valuations, plus the more challenging marketing environment for smaller studios, combined with our large cash position and free cash flow we generate, positions us very well to continue acquiring great assets. So that’s really where our focus is going for next year. We intend to give guidance for '24 in the earnings call for Q4 in February, but at least strategically, hopefully this gives you a sense of what we're planning.

Our next question comes from the line of Colin Sebastian of Baird.

Glad to hear everyone on the team in Israel is safe and know that you're in our thoughts. Given some of the sequential trends in the business, it might be helpful to provide some additional context on where you see the health of the broader market and what you're seeing from your competitors. Related to that, regarding the additional performance marketing spend, is that something we should expect more of as well through Q4, and is that part of the stabilization plan for the core franchises?

Sure. Q3 is seasonally the slowest quarter of the year, so looking at sequential comparisons can be challenging; it's better to look year-over-year. That said, the quarter was probably most impacted by the performance of Bingo Blitz, which is our biggest title. If you look at third-party sites and look at recent performance over the last several weeks, that title has bounced back. As we look going forward, we'll continue to invest in our biggest titles where we see the best growth potential and best ROI. Big brands and large franchises that can invest more materially in marketing definitely have an advantage and tend to perform better in the rankings. This positions us quite well, in combination with our M&A capabilities in a mature market that's consolidating.

And any comments on sort of the pace of performance marketing spend?

Regarding performance marketing, this has been part of our strategy from the beginning, focusing more on quality versus quantity. In some of the games where we see potential from the performance marketing side, we will keep investing in that. There's nothing special that we can add right now.

Okay. I'm showing no further questions at this time. Oh, actually, we just had one pop up. One moment while I pull this question up. This question comes from Dave Nwokonko on behalf of Matthew Cost of Morgan Stanley.

I was wondering if you could speak to expectations on any differences in performance versus social versus casino games heading into next quarter and maybe into '24.

Yes. When we report, we always speak about social casino and non-social casino. However, as a company, we are always looking game by game. This is how we manage our games. Even in the social casino aspect, like Craig said before, with Slotomania, it has become very stable, and we have fixed many things in the last quarter. We see a positive future. It only depends on where we allocate our marketing budget; when we see the potential for growth, it doesn't matter if it is social casino, casual, or any other type of game. Until now, we are happy with what's happening in social casino and particularly optimistic about Slotomania, as this is our biggest title in this genre.

I'm showing no further questions at this time. I'd like to thank you for your participation in today's conference. This does conclude the program. You may now disconnect.