Earnings Call Transcript - PLTK Q1 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Playtika Q1 2025 Earnings Call. At this time, all participants are in listen-only mode. After the speaker's 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 your conference over to your first speaker today, Tae Lee, SVP, Corporate Finance and Investor Relations. Please go ahead.

Tae Lee, SVP, Corporate Finance and Investor Relations

Welcome everyone, and thank you for joining us today for the first quarter of 2025 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 would 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, and more specifically, the future performance of our individual titles such as Slotomania or our recently launched Disney Solitaire. These statements and other comments are not a guarantee of future performance, but rather are subject to risk 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. We have posted the company slide deck to our investor relations website, which contains information on forward-looking statements and non-GAAP measures, and we will also post their 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'll now turn the call over to Robert.

Robert Antokol, Co-founder and CEO

Good morning, and thank you, everyone, for joining our call today. I'm pleased to report that Playtika achieved a historic milestone in the first quarter, generating over $700 million in revenue, the highest quarterly revenue in our company's history. This performance reflects the strength of our industry-leading portfolio of mobile games and our ability to acquire industry-leading franchises and help support each acquired studio's growth objectives. Recently, we celebrated our 15th anniversary, proof of our lasting business model and industry leadership. Over the years, Playtika has consistently demonstrated resilience and innovation, solidifying our position as the leader in mobile gaming. I'm also excited to share that Disney Solitaire had its global launch on April 17. While it's early, the new title is showing very promising signs with some of the best launch KPIs I have seen in years. Our SuperPlay studio has a remarkable track record, having successfully launched and scaled two previous games, and Disney Solitaire is poised to be its third hit game. Based on the game's impressive start, I'm confident that it will achieve the $100 million run rate revenue mark faster than Dice Dreams and Domino Dreams. I look forward to sharing more updates on this exciting new franchise in the future. I'm incredibly proud of our SuperPlay studio for the outstanding work in bringing Disney Solitaire to market in collaboration with Disney. Bingo Blitz had another record-breaking quarter, achieving all-time highs in total revenues and revenues from our direct-to-consumer platforms. As the largest mobile bingo game and one of the largest casual games in the industry, Bingo Blitz continues to grow the category, attract a new audience, and benefit from the winner-takes-most dynamics of the channel. Its enduring performance, more than a decade after the acquisition, is a clear testament to the strength of our live operation and ongoing content innovation. Turning to Slotomania, Slotomania’s results in the first quarter were disappointing, and the year-over-year decline in performance is a result of several quarters of sequential decline. While we believed we had addressed the game economy issues in January, we have seen the issues resurface, leading to weakness in the game starting at the end of March. Slotomania's revenue will continue to decline in the coming quarter before we start to see improvement. Looking ahead, we are planning to launch our new slot game in the back half of the year. In addition, we're integrating renowned IGT slot titles into our platform, enriching our game offering with high-quality real-world content. Following the successful launch of Cleopatra II last December, we introduced Regal Riches this past quarter with several more launches planned for the rest of the year. Stabilizing Slotomania and launching new slot games remain the top strategic priority at Playtika. In closing, I want to thank our team for their hard work. Your efforts have been vital in building our industry-leading portfolio of games, which has helped us achieve this milestone of record revenue in the quarter. I look forward to providing updates on our 2025 new game launches. I will now turn it over to Craig for a deep dive into our quarterly results.

Craig Abrahams, President and Chief Financial Officer

Thank you, Robert. Before diving into the financials, I want to update you on where we are on our growth drivers. We're investing behind our recently acquired titles, as well as our leading casual games. Our D2C efforts are showing strong results, and we are excited about introducing new mobile game franchises to the market. As Robert mentioned, Disney Solitaire is off to a very strong start in April and is very encouraging as we look at our future pipeline. Within our core portfolio, we've experienced revenue declines in our slot titles and our smaller casual games without leadership positions in their respective genres. We are focused on product investments and operating improvements to stabilize Slotomania and our other slot titles, but this will take time. In addition, our leading casual game franchises, such as Bingo Blitz, Solitaire Grand Harvest, and June's Journey, continue to be franchises we believe we can grow over time. They reflect the kind of category-leading, evergreen franchises that define long-term winners in mobile gaming today. The mobile gaming landscape is evolving with player engagement in revenue increasingly concentrated around established and high-performing titles. Players are dedicating more time to games that have stood the test of time, drawn by ongoing updates, community engagement, and proven entertainment value. This favors companies like Playtika, operators with a leading diversified portfolio of industry-leading games, best-in-class live ops capabilities, and a proven ability to generate free cash flow at scale. As we navigate this transition, we are making strategic capital allocation decisions aimed at enhancing our financial profile and positioning the company to capitalize on these dynamics. We take pride in our track record of being disciplined operators, consistently making thoughtful investment decisions to optimize our resources and drive revenue growth. We remain committed to identifying opportunities to enhance efficiency and deliver sustainable savings to support our long-term success. With that, let us get into the details of the quarter. We generated $706 million of revenue in the first quarter, an 8.6% sequential increase and an 8.4% year-over-year increase. The increased overall investment in performance marketing had an impact on our credit-adjusted EBITDA margins, as we generated credit-adjusted EBITDA of $167.3 million, down 9% sequentially and down 9.9% year over year. GAAP net income was $30.6 million, down 42.3% year over year. Our direct-to-consumer business achieved record revenues once again as we generated $179.2 million, up 2.6% sequentially and 4.5% year over year. The growth in our D2C business was driven by Bingo Blitz, June's Journey, and Solitaire Grand Harvest, offset by declines from the slot titles. We believe our D2C business has meaningful growth potential over the next 12 months. Historically, we have targeted 30% of our revenue to come from D2C. It is important to note that many of our games are performing above this mark, and the 30% represents an average. This demonstrates our ability to further grow our D2C business, which we intend to prioritize in the coming quarters. This focus will help partially offset some of the margin pressure as we invest in recently acquired higher-growth titles. We are confident these efforts will contribute to our margins. To further elaborate on our performance, I want to provide some context around our Q1 results and our outlook for the remainder of the year. In Q1, as is our typical seasonal trend, we experienced higher marketing spend, which, along with the losses from the SuperPlay acquisition, contributed to the decline in adjusted EBITDA year over year. We expect marketing expenses to decline sequentially in the coming quarters. As we evaluate our revenue forecast, we are affirming our guidance for the year, as the declining trends in our slot games will be offset by the growth of casual titles in the portfolio. Turning now to our business results from the quarter, the sequential growth in the quarter was driven by the full-quarter contribution from Dice Dreams and Domino Dreams and the continued impressive performance from our largest game, Bingo Blitz. Dice Dreams was among our top three games by revenue this past quarter. Bingo Blitz revenue was $162.4 million, up 2.1% sequentially and up 3.1% year over year. In Q1, Bingo Blitz’s performance was driven by several key initiatives. The American Idol campaign, which features an exclusive in-game collaboration with Lionel Richie, brought significant engagement and excitement to the game. Players enjoyed a unique American Idol experience competing in Bingo challenges and had the chance to win VIP tickets to the American Idol finale. The introduction of a new bingo room featuring a social player-versus-player experience inspired by American Idol was received positively by our community. This campaign not only boosted player engagement but also enhanced the game's visibility and appeal, driving a strong marketing effort that successfully attracted new players to the game. More recently, we launched our Bingo Blitz-branded game show on the Game Show Network. This new series, hosted by Valerie Bertinelli, combines bingo play with trivia challenges. The game show has been well received, bringing the dynamic and social gaming experience of Bingo Blitz to television screens. We anticipate this initiative will help strengthen the Bingo Blitz brand by reaching a broader audience. Slotomania revenue was $111.8 million, down 5.5% sequentially and down 17.4% year-over-year. Despite these challenges, our D2C business remains a cornerstone of our success. Slotomania’s D2C business demonstrated stable performance quarter-over-quarter. Our strong connection with our most loyal players has been instrumental in extending the lifecycle of our games far beyond industry standards. Dice Dreams revenue was $78.6 million, up 124.5% sequentially compared to a partial quarter of revenue contribution from the SuperPlay acquisition. This impressive growth reflects the successful integration of Dice Dreams into our portfolio and the strong execution by our teams. In Q1, Dice Dreams benefited from several key initiatives that contributed to its robust performance. Our other acquired titles are performing in line with our expectations. We are especially pleased with the ramp-up in revenue we have seen from Domino Dreams. The game is gaining traction, and we are optimistic about its roadmap as we invest in marketing and content updates to drive monetization. Turning to specific line items in our P&L for the first quarter. Cost of revenue increased 11.5% year-over-year, driven by our revenue growth and an increase in amortization expenses in our P&L resulting from the acquisition of SuperPlay. Operating expenses increased 19.4%, driven primarily by increased performance marketing spending, also attributed to our acquisition of SuperPlay. R&D decreased by 2.9% year-over-year. The savings from the expiration of our long-term cash compensation program offset increases in hosting expenses and costs associated with outsourced services. Sales and marketing increased 42.8% year-over-year. The increase in sales and marketing was primarily driven by the incremental performance marketing spend from our acquisition of SuperPlay. We anticipate sequential declines in marketing spend for the remainder of the year. G&A expenses declined by 9.2% year-over-year. The decline was primarily due to the expiration of our long-term cash compensation program, which resulted in lower accrued expenses offset by an increase in contingent considerations. As of March 31st, we had approximately $514.3 million in cash, cash equivalents, and short-term investments. We entered into an agreement to extend the maturity of the revolving credit facility from March 2026 to September 2027, subject to the satisfaction of certain conditions, and decreased the aggregate principal amount of the revolving credit facility from $600 million to $550 million. Looking at our operating metrics, average DPU increased 15% sequentially and 26.2% year-over-year to 390,000. Average DAU increased 12.5% sequentially and 2.3% year-over-year to 9 million. ARPDAU decreased by 2.2% sequentially and increased by 7.4% year-over-year to $0.87. Finally, we are reaffirming our guidance for the year. We'd be happy to take your questions.

Operator, Operator

Operator Instructions. Our first question comes from Doug Creutz of TD Cowen.

Doug Creutz, Analyst

Thanks. I wondered if you could talk a little bit more about sort of Disney Solitaire and how that fits into your marketing plans for the year. Obviously, it's great that it's off to a good start. Typically, when you have a new launch, if the KPIs are good, you're willing to pour more marketing revenue into the game to increase the long-term value of the game. So, how are you sort of balancing that against your commentary that marketing expenses will be declining sequentially through the year? Thanks.

Robert Antokol, Co-founder and CEO

Hey Doug, thank you for the question. Obviously, I'm excited about the new franchise and the strong start to the launch. As we look at marketing expenses overall, the first quarter tends to be the largest quarter in terms of marketing spend, and it typically goes down sequentially from there. I think as we look at the launch and we weigh it, we obviously have a large portfolio of games. So, we're mindful of allocating capital towards those games with the best ROI.

Doug Creutz, Analyst

Okay, thanks.

Tae Lee, SVP, Corporate Finance and Investor Relations

Thank you for your question.

Operator, Operator

One moment, please. Our next question comes from Matt Cost of Morgan Stanley. The line is yours.

Matt Cost, Analyst

Great. Good morning. Thanks for taking the questions. I guess on Slotomania, you know, it seems like you're expecting continued declines for that game. How should we think about the path forward for that franchise? Is the new slot game in the pipeline kind of an attempt to fill the gap from Slotomania, or maybe serve as an equal replacement for it? Or is there a plan in place to sort of stabilize Slotomania and throw a lot of investments at some point in the future into that title?

Robert Antokol, Co-founder and CEO

Thanks for the question. So, we see issues around Slotomania in the last year, and we never said to the market, and we will show that last quarter we found a way to stabilize the game. I think at the end of the day; the game is suffering from being in the market for such a long time without a big change. So now we decided to focus and change a lot of things in the game to stabilize it. We changed the management of the studio, and for us, it’s a top priority to stabilize and grow the game. On the other hand, I was our last launch of a slot game was 10 years ago, and in those last 10 years, we found ourselves with a lot of content, a lot of interesting content, with a lot of experience and knowledge, and we decided to take everything and to bring back the market share that we lost in the last few quarters. This is our mission: to be in the market with a new app in this category; it’s a win-win situation. So, I think stabilizing the game, fixing the issues we have, and launching a fresh app in this market is the right step to come back and grow again in this category. Thank you.

Matt Cost, Analyst

Great. Thanks. And then Craig, you talked about marketing stepping down sequentially in the coming quarters. I guess are there any other puts and takes that we should think about in the phasing of costs through the rest of the year as you integrate SuperPlay?

Craig Abrahams, President and Chief Financial Officer

Nothing as it relates to SuperPlay, but I think as we look at the year, obviously there's opportunities to continue to progress on direct to consumer. I think there's margin potential there, and you know, we're consistently looking at opportunities to further manage expenses. So, I think that's the puts and takes between the growth and the casual part of the business, as well as managing the declines we've seen in the slot portfolio.

Matt Cost, Analyst

Great. Thank you.

Operator, Operator

Thank you for your question. Operator Instructions. Our next question comes from Albert Kim from UBS. The floor is yours.

Albert Kim, Analyst

Thanks for taking my question. Just on the D2C front. Last quarter, I believe you talked about Animals and Coins and Governors of Poker eventually making their way into the D2C channels. Any update on timing, how we should think about the overall D2C mix developing from here? And just to the extent that there are any apps or changes allowing kind of the direct link and the inclusion of third-party apps, do you see any changes to D2C adoption rate expectations? Thank you.

Robert Antokol, Co-founder and CEO

So, thanks for the question. D2C for Playtika has always been a big advantage. We believed in this a few years ago, and we built our infrastructure slowly, getting ready for the situation that today everyone is speaking about. We see the changes in the market. We are still learning and trying to understand how to react. But one thing I can say, we are all in. We understand and are ready; we are going. For us, it’s one of the biggest potentials for more profit to the company, more EBITDA. And again, for everyone speaking about the PC, for us, it’s old news. We are starting from a different place than everyone else, and I think again, for Playtika, this is a huge opportunity. And actually, it’s really hard to say opportunity because it's already here. Thank you.

Operator, Operator

Thank you for your question. At this time, I'm showing no other questions. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.