PLAYSTUDIOS, Inc. Q4 FY2023 earnings call

• 2023 was eventful with strong year-end results: fourth quarter and full year revenues and adjusted EBITDA exceeded guidance and analyst expectations. Adjusted EBITDA grew nearly 65% and margins expanded by ~700 basis points. Revenues grew 7% despite mobile games industry contraction. Advertising revenues diversified from 8% to 19%. MAU and DAU increased 70% and 84% respectively. Reorganized around playGAMES and playAWARDS. Extended Tetris license for up to 8 more years. Fully incorporated Brainium and saw sequential growth. Purchased $15M in stock, remained debt-free, and maintained strong cash position. Strategy has two pillars: expanding playGAMES by optimizing portfolio and developing/acquiring new games, and advancing playAWARDS by enriching platform and services for external businesses.

In the fourth quarter, adjusted EBITDA was $14.7 million, 22% higher than the prior year. For the full year, adjusted EBITDA was up 63% from 2022, with an adjusted EBITDA margin of 20% (up 680 basis points from 2022's 13.2%). Revenues in the fourth quarter were down modestly vs prior year due to the end of a licensing contract in Q2 2023, but adjusting for that, were flat vs prior year. Full year revenues were up 7% vs 2022. DAU and MAU in the quarter were up 6% and 16% respectively. Tetris drives much of the gains, but growth portfolio also shows healthy lifts. Core social casino portfolio saw user declines in the quarter but optimism for 2024. Excluding advertising-driven games, ARPDAU was up ~3% in the quarter. playGAMES and playAWARDS segments now have separate revenue and EBITDA disclosures.

• Estimates revenues to range between $315 million and $325 million and adjusted EBITDA between $65 million and $70 million for 2024. Guidance implies organic growth despite challenging industry backdrop and continued adjusted EBITDA margin gains. Initiatives expected to gain momentum throughout the year with sequential pickup through each quarter. Other revenues to track closer to Q4 2023 quarterly rate, annualizing in Q3 2024.

• Macro and secular headwinds in the game industry. Impact of regulatory changes like DMA in Europe on DTC efforts. Industry competition affecting user acquisition and revenue. Uncertainty around success of new game development initiatives, as crafting new games is art rather than science.

Q: I want to start with the potential commercialization of playAWARDS as a loyalty as a service platform. Is that just a focus area? Or is the pipeline actively being evaluated and worked on as we speak?

A: It's been focused on since early last year. We've qualified the opportunity and evaluated models, still in the phase but encouraged by feedback and expect to resolve the best way to exploit it this year.

Q: Switching over to the cost side. Is there more efficiencies that you, guys, have targeted? Or is primarily, the operating leverage and margin expansion to get to that peer median, more so to do with operating leverage and revenue growth?

A: Always looking for productivity and efficiency, but margin expansion going forward will come from top line growth and flow-through as fully loaded cost per employee is in line or below public peers.

Q: Just as you think about the stock at this valuation, I know you had some prepared remarks, but are there any M&A transactions that could be more accretive than just going and repurchasing your own stock here?

A: Yes, believe there are, but difficult to find in current valuation. Transactions need to be accretive, strategically significant, and reposition the company for growth.

Q: Can you just talk about the puts and takes that get you to the high end and the low end of the range? What's contemplated from an investment and marketing standpoint? And you're just generally where you think the biggest buckets of growth will come from?

A: Growth from across portfolio: core portfolio seen as stabilizing, growth portfolio including Tetris Prime and Brainium with momentum, development portfolio with new Tetris titles in development. Investments in UA if new casual Tetris products launched this year. Margin expansion from top line growth and productivity efforts.

Q: Is there anything you can share in terms of how confident you are that this will materialize this year versus slipping into next year? And how should we be thinking about the reinvestment into the playAWARDS platform from here? Should it be fairly steady from current levels? Or do you kind of expect to have to turn on the faucet a bit to accomplish some of your goals?

A: Confident in playAWARDS value proposition, but complexity in transitioning to service for others; hope to resolve strategy by end of year. Ongoing investments in playAWARDS are fairly stable, with added cost expected to be material relative to current run rate when scaling servicing new partners.

Q: I would like to hear your thoughts on what the implementation of the DMA in Europe means for PLAYSTUDIOS. Does it have any impact on your efforts on DTC?

A: Still waiting for regulations to fully form. DTC strategy related to myVIP integration and web-based presence where players can interact directly. We have a unique proposition with playAWARDS web solution allowing direct purchase with incentives, and expect DTC revenue mix to grow with margin improvement.

Q: And just a follow-up on that point. Do you have a long-term target on what DTC might make up?

A: Set annual goals, aim to be in line with more mature peers like Playtika which has a significant DTC mix, but specific target not mentioned explicitly but aiming for comparable rates.

Q: Scott, I wanted to -- I think you said just later this year was kind of your commentary, but if you could go over maybe the rough timing of new game launched this year and maybe if there are any modeling implications regarding marketing or increased development expenses during certain time periods?

A: Tough to predict new product launch timing, but hope to introduce one new casual Tetris title before end of year. Forecast and guidance don't account for impact of new product launch on top line or marketing expenses in 2023.

Q: wondering if you could just address the overall interest levels from perspective playAWARDS and loyalty platform customers. I know, in past quarters, you've talked about it. Being strong, I'm wondering if you’re seeing more interest there if it's kind of stabilized. And I guess, considering and we've talked about it for a little bit now, like what's kind of causing maybe the delay in an initial customer there?

A: Feedback from market needed tangible case studies and seamless integration for third parties. Spent 8 months building case studies with real data and AB testing, and refining technology for easy integration. Now getting ready to productize and launch as a dedicated solution.