PLAYSTUDIOS, Inc. (NASDAQ:MYPS) Q2 2023 Earnings Call Transcript

PLAYSTUDIOS, Inc. (NASDAQ:MYPS) Q2 2023 Earnings Call Transcript August 6, 2023

Operator: Good afternoon everyone and welcome to the PLAYSTUDIOS Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded. I will now turn the conference over to Samir Jain, Head of Investor Relations and Treasury. Mr. Jain you may begin.

Samir Jain: Thank you, operator. Good afternoon, and thank you for joining us for PLAYSTUDIOS second quarter 2023 earnings call. Joining me on the call today are our Chairman and CEO, Andrew Pascal; and our CFO, Scott Peterson. Before we begin, let me remind you that during the course of this call, we will make forward-looking statements. These statements are based on our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of the risks and uncertainties that may affect our future results. We will also discuss certain non-GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP.

Our results are prepared in accordance with GAAP and a reconciliation to comparable GAAP measures will be provided in our second quarter earnings release and in our SEC filings. With that, I’ll pass the call to Andrew.

Andrew Pascal: Thank you, Samir. Welcome to our second quarter 2023 earnings call. Earlier today, we published a press release containing our financial results and commentary for the Second Quarter of Fiscal Year 2023. As always, our release contains considerable financial disclosures and management thoughts on topics we believe are pertinent to our company. I hope you’ve had a chance to read the release, and if not, would encourage you to do so. Rather than rehash what is contained there, Scott and I will spend a few minutes highlighting key developments and save the majority of today’s time for your questions. We had another strong quarter topping analyst forecasts and showing material gains for most of our key metrics. Similar to last quarter, adjusted EBITDA margins expanded meaningfully year-over-year.

As we’ve discussed before, reaching margin parity with our peers is a primary goal of ours, and something will continue to advance as we balance our focus on operational improvements with our ongoing investments in future growth. Our Play Games business division continues to benefit from the momentum in our growth portfolio while our core business is trending in line with the industry as a whole. Tetris continues to be a standout. We remain excited about the collection of game initiatives we’re pursuing. As I’ve shared on past calls, we continue to work diligently on optimizing the Tetris Prime product while we invest in new core casual versions of this puzzle format. In addition, we’re also making progress across the remainder of our growth portfolio and remain encouraged by the potential of these games.

As for our playAWARDS business division, we continue to evolve the core technologies, tools, and services which enable the growth and impact of our MyVIP loyalty program. We’ve also been testing the waters with external game publishers to qualify their interests in our loyalty as a service solutions. As I’ve reinforced on prior calls, we are the pioneers in rewarded play, and remain enthusiastic about the as-of-yet-untap potential of this unique and valuable business opportunity. We continue to believe that the validation from third parties can unlock an entirely new dimension of value, which we don’t believe is fully reflected in our stock price today. I’ll now turn the call over to Scott to provide some additional comments. Scott?

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Scott Peterson: Good afternoon, everyone. In addition to today’s press release, our Form 10-Q will be filed shortly. As such, I’ll add a few comments here, but would direct you to those filings for a comprehensive summary of the second quarter’s results. Similar to our first quarter, our higher adjusted EBITDA margins versus last year were primarily the result of the addition of Brainium, higher overall revenues, and lower UA spend. We do expect adjusted EBITDA margins to continue to be above prior year levels in the second half of the year. However, we do anticipate an increase in UA spending in the second half of the year in order to support our growth portfolio, and we also expect royalties as a percentage of revenue to increase, but still to be below prior year levels.

Both DAU and MAU in the quarter were heavily skewed by the inclusion of Brainium, which we purchased in October of last year. Excluding Brainium, both DAU and MAU were up double digit percentages versus a year ago, driven by the momentum of our growth portfolio. ARPDAU was down due to the impact of Tetris and Brainium, both of which are advertising driven games that generally reflect lower ARPDAU but higher margins than our in-app purchase driven games. Adjusting for these advertising driven games, ARPDAU increased by approximately 8% on a year-over-year basis. Our financial position remained strong. We ended the quarter with approximately $128 million in cash, no borrowings, and full availability of our $81 million revolver. We purchased $10 million of shares during the quarter and have $30 million remaining on our stock repurchase authorization.

Finally, we are increasing our 2023 adjusted EBITDA guidance to a range of $55 million to $60 million versus the previous range of $50 to $60 million. Our 2023 revenue guidance of $305 million to $325 million remains unchanged. The guidance assumes an uptick in spending to support our growth games and continued industry and economic stress. I will now turn to call back to Andrew for some closing remarks.

Andrew Pascal: Thank you, Scott, and to everyone who’s dialed in for today’s call. We appreciate your interest and look forward to updating you on our progress in the coming months. As always, I want to close by thanking my colleagues, fellow playmakers, and partners that work tirelessly to help us advance our business. It’s through their commitment and contributions that we’re able to learn, adjust, and grow. I’ll now turn the call over to the operator to take your questions. Operator?

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Q&A Session

Operator: Thank you. We’ll now be conducting a question and answer session. [Operator Instructions] Thank you. Our first question is from Ryan Sigdahl with Craig Hallum Capital Group. Please proceed with your question.

Ryan Sigdahl: Good afternoon, Andrew Scott.

Andrew Pascal: Hey, Ryan, how are you?

Ryan Sigdahl: I’m good, good. I want to start with the guidance. So it implies at the midpoint that revenue growth slows margins decline because you’re going to spend more on UA. I guess my head thinks if you spend more on UA, it should accelerate revenue growth. So I guess just help me reconcile kind of the midpoint, so the revenue guidance and the decline in EBITDA margin.

Andrew Pascal: I mean, look, I’ll offer kind of a quick reaction and certainly Scott can weigh in as well. I think it’s safe to say that, we offered a range and we didn’t tighten up the range from the revenue perspective because as we do start to lean into and invest in some of the newer products that we have, we would certainly expect to see some increases in revenue. It’s hard to predict at this stage, so we just felt that we would leave the band and the range of revenue guidance where it is, but felt a bit more comfortable tightening up that band from an EBITDA perspective. I think your point is clear and generally agree with you, but I just wanted to leave ourselves in flexibility.

Ryan Sigdahl: Sure. That makes sense. I’m curious how you think about ARPDAU growth versus adding new users and maybe thinking more of the core games versus the new games you’re going to launch, but competitors are clearly focused on the ARPDAU, but how do you think about the balance between those two?

Speaker: Well, I mean ARPDAU, obviously the function of audience scale and revenue. So products or companies are in a position where they have the benefit of being able to scale up their audience, which a lot obviously has been made of how difficult that is in the current environment, — be able to scale audience and ARPDAU at the same time is challenging but can be achieved. So assuming ARPDAU remains constant, well then, clearly there are the opportunities to drive revenue by converting more of your audience and increasing the amount of value you extract from your audience, so increases in both PPU and ARPDAU, which we focus on very intensely with our core products, the more mature games that have fairly stable audiences. So I would say going forward as we continue to lean into the new casual products in our portfolio and some of the newer products that we’re going to be launching and scaling, those are, we’re going to be increasing our audience.

And so those players that do convert and spend, they’ll be earlier in their lifecycle of spending, so the ARPDAU from that audience tend to be a bit smaller, which would blend down overall ARPDAU and may also blend down ARPDAU, but over time, we would expect those cohorts to mature and to start monetizing much like the more mature older cohorts that we have, in which case we would expect to see that ARPDAU lift. So it’s a bit of a tough question to answer because there’s just so many factors that come into play when you’re looking at ARPDAU, but hopefully that color helps.

Ryan Sigdahl: Yes. Thanks, job on the margins and execution guys. Good luck.

Andrew Pascal: Thank you, Ryan.

Operator: Thank you. Our next question is from David Karnovsky with JP Morgan. Please proceed with your question.