SciPlay Corporation (NASDAQ:SCPL) Q1 2023 Earnings Call Transcript

SciPlay Corporation (NASDAQ:SCPL) Q1 2023 Earnings Call Transcript May 10, 2023

SciPlay Corporation misses on earnings expectations. Reported EPS is $0.24 EPS, expectations were $0.25.

Operator: Good morning. And thank you for standing by. Welcome to the SciPlay First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Please be advised that today’s conference is being recorded. I’d like to hand the conference over to your speaker today, Robert Weiner, Vice President, Investor Relations, SciPlay Corporation. Please go ahead.

Robert Weiner: Thank you, operator, and good morning, everyone. During today’s call, we will discuss our first quarter 2023 financial results and operating performance which will be followed by a question-and-answer period. With me today are Josh Wilson, CEO; and Daniel O’Quinn, Interim CFO. Our call today will contain remarks that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For more information regarding these risks and uncertainties, please refer to our earnings release issued yesterday and our filings with the SEC. We will also discuss certain non-GAAP financial measures, including key performance indicators, which are based on in-app purchases only.

A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as in the Investors section on our website. As a reminder, this conference call is being recorded. A replay of this webcast will be archived in the Investors section of our website at sciplay.com. Now, I’m pleased to turn the call over to Josh.

Josh Wilson: Good morning and thanks so much for joining us. I’m excited to report that SciPlay continued its industry leading performance with a strong first quarter. Our games again outperform hitting tremendous numbers and again setting multiple records. For five consecutive quarters, our year-over-year growth has outperformed the entire social casino market. We accomplish this because we are innovative, focused, and driven by our passion to win. Our SciPlay teams consistently deliver engaging and entertaining experiences that our players enjoy and demand. We know what is happening and when it is happening all the time. We evaluate and manage the business with precision and real time KPIs. We invest wisely with discipline and financial rigor.

All of this is made possible by our global team of over 800 SciPlayers staff. We are united in our mission to be a player first focus and just win. We began the year with significant momentum, focused execution, winning strategies and smart investments. Our current achievements are phenomenal and are driving us to push beyond mere success. Our passion to win is deeply root in our culture and in everything we do. SciPlay is delivering value to our players and our shareholders and we are investing in our future from a position of strength. Now, here are the details of Q1’s results. Revenue grew to $186 million, up from $158 million in Q1 last year. This is 18% growth year-over-year driven by the enduring strong performance of our game franchises.

Net income attributable to SciPlay was $5.5 million or $0.24 per diluted share in the first quarter, increasing by 25% and 33% respectively, compared to the first quarter of 2022. Our Q1 AEBITDA grew to $54 million, up from $44 million compared to last year’s first quarter. This is year-over-year AEBITDA growth of 21%. We are growing profitability at a faster pace than revenue growth illustrating the leverage we are gaining from our investments. Combined, our investments in the SciPlay engine and the platform scalability are setting us up for long-term growth. In the first quarter, our payer base grew and we increased monetization from existing payer cohorts. These two points are very important. They forecast the value of our games and their sustainability.

Our games attract, retain and grow players and then convert them to payers. We have 6 million active customers and just over 10% are currently payers. This gives us enormous opportunity to continue expanding our payer base. We are proving these points by achieving several record KPIs, resulting in strong sequential growth in Q1. We had high performing payer conversion rate of 10.3%, up 16% year-over-year. In fact, we hit our highest number of payers again this quarter through more than 600,000 growing 6% over Q4 and up 12% year-over-year, we achieved Q1 ARPDAU of $0.89, an increase of 20% year-over-year. Our average monthly revenue per paying user increased by 5% year-over-year to $97.43 compared to $92.45 in Q1 last year. Q1 was very strong quarter and exceeded our expectations.

Our game franchises continue to provide compelling entertainment to our players. Jackpot Party Social Casino had strong double digit growth. The game set its third consecutive quarterly revenue record and maintained its number one ranking amongst all social casino games in the US. Quick Hit Slots posted its fifth consecutive quarterly revenue record. The game hit a new record with the highest number of DAU in its history. Quick Hit Slots is now one of the fastest growing games in social casino. During Q1, we launched the winning day campaign with Jerry O’Connell for Quick Hit Slots. The ads were run live on national TV, including major networks, cable and streaming devices. The campaign was integrated in game on Facebook and other digital channels, creating continuity and it yielded great returns.

Quick Hit Slots was ranked number one in the free casino games category on the Google Play Store during a majority of the campaign’s period. The results were impressive. We continue to attract new players and new payers. As a result, we have extended the campaign into the second quarter. Overall, we continue to significantly outpace the social casino market. Our three main investment pillars the SciPlay engine, ad tech and talent are driving our industry leading performance. The SciPlay engine is a centralizing force. It is instrumental as both the portal and a unifier of data, cross platform learnings and as a stout provider of resources across our organization. Whether it’s data science, economy, features or game mechanics, the SciPlay engine is a scalable and robust solution.

It provides real time insights into player behavior, enabling us to offer improved segmentation, specialization and game performance. The player’s experience is enhanced and [inaudible]. This leads to increased playing time and increased spending. Payer conversion rates remain high. Our players are more inclined to pay and pay more often. This is due to our team’s improving player analytics and the introduction of new content and features into our games. Our Live Ops teams have developed dynamic game roadmaps that increase engagement and monetization. The teams leverage the SciPlay engine’s real time learnings to optimize our player relationships and deliver unique personalized experiences. This improved segmentation and specialization has yielded positive results.

We are growing our payer base by converting existing cohorts. SciPlay effectively adapted to the changes and the mobile gaming landscape by investing in our ad tech. Our teams develop proprietary ad tech that includes new retention, retargeting tools and optimized ASO models, player focused content marketing and creative based segmentation are incorporated to improve engagement, retention and conversions, all factors that drive revenue growth. This year we are evolving our marketing activities into mature growth spaces by focusing on reactivations, audience expansions, amplify brand awareness, all of which increase traction and further propagate our growth. We invest in our talent and provide the tools and support to cultivate professional development and growth.

Internal initiatives, programs and structuring have further invigorated our teams. Our teams are more productive than ever before and our gains are greater than ever. For example, we strategically manage our games portfolio from a holistic view across the entire organization, monitoring, adapting, pivoting and maximizing the capabilities of our agile platform. Our teams evaluate KPIs in relation to specific revenue and both fixed and variable cost. This enables the implementation of real time initiatives in our games. This mindset is embedded in our culture and in the SciPlay DNA. We live and breathe this very hands-on approach every day, melding great data with great innovation and great execution to achieve our outcomes. At SciPlay, we continue to invest to drive long-term growth, competitive advantages, profitability and market expansion.

We set stringent objectives and put each investment through rigorous financial evaluation and gait each stage of the investment’s lifecycle. When we see wins, we reinvest based on ROI. When we don’t see the expected returns, we realign capital investment. We are disciplined in our execution and capital deployment and remain ROI focused every step of the way. For example, first, DTC platform, which is currently in the evaluation and testing phase. We are now in the crawl stage of our crawl walk and run release process, ensuring we have maximum protection of all of our valuable customers. Second, we are broadening our scope to find new players with new marketing initiatives, ad tech and brand awareness efforts, allowing us to continue increasing our marketing spend ROIs. And finally, our global operations footprint is expanding into areas of known for engineering prowess.

This quarter’s performance is a clear reflection of our team’s strong execution and unwavering passion to win. Our SciPlayers around the world are responsible for our success. Our teams build the technology, develop the games, and are continuously innovating to provide the greatest entertainment experience possible. We are so proud and grateful of each SciPlayer’s contribution. We remain committed to our players, our teams and our shareholders. Our dynamic growth plans, our player first focus and the resilience of our game franchises are the key elements to our success. And now to you, Daniel.

Daniel O’Quinn: Thanks, Josh. Good morning, everyone. And thank you for joining our call today. SciPlay posted strong financial results in the first quarter. This reflects the progress of our key objectives delivering great entertainment experiences to our players, investing in our game franchises, growing market share in social casino and prudently allocating capital. Our Q1 results continue to illustrate our path of overperformance compared to the overall social casino market. We’re benefiting from the investments we made in our game franchises, our proprietary technologies, our systems and organizational scalability. By continuing to invest in our game franchises, we’re delivering great player experiences. This comes through customization and segmentation from the SciPlay engine’s improved data science and analytics.

Investments in people, product and process surrounding the SciPlay engine have increased the speed, collaboration and effectiveness of our team while sparking increased creativity and innovation. These are reflected in our sustained overperformance and continuing robust growth. Now, here are the key highlights for Q1. First, we continue to deliver strong financial performance with our game franchises. We set new records, achieving the highest number of payers based on increased player engagement. Second, our team’s industry leading performance is reflected in the quality of our revenues and profitability growth, which is organically driven and sustainable. Third, we grew year-over-year net income and AEBITDA at a faster pace than revenue while expanding margins, we’re also investing in our assets and future growth opportunities.

And fourth, we have the liquidity, flexibility and financial strength provided by a high cash generating business. We generated $42 million in operating cash flow in Q1 and we completed the $60 million share repurchase program. Now let’s get into some of the financial performance details. We generated strong first quarter revenue of $186 million, an all-time record, up 18% year-over-year with our social casino gains significant outperforming the market. We generated first quarter net income of $42 million, or a 22% margin, and diluted earnings per share attributable to SciPlay of $0.24. We grew AEBITDA by 21% year-over-year to a $54 million, achieving a 29% margin. We continue to set records in several of our key performance indicators. In the first quarter, we grew our payers 12% year-over-year to a record 625,000.

We also saw increases in payers on a sequential basis, which began in Q1 of last year. Our average monthly revenue per paying user was $97.43, marking the 12th consecutive quarter above $90. We also set a record ARPDAU of $0.89, an increase of 20% year-over-year. We firmly believe strong revenue growth and even faster AEBITDA growth, combined with strong cash flow are the key drivers of shareholder value. SciPlay is executing all three of these objectives. They are driving increased scalability and efficiencies, enabling key investments and building on our competitive advantages. We continue to operate from a position of strength, generating $42 million in operating cash flow in Q1, ending the quarter with strong liquidity of $358 million in cash and total liquidity of $508 million.

We have the financial strength and flexibility to deploy excess capital to drive increasing shareholder value. Currently, we’re deploying capital in two areas. We’re investing in our game franchises, which are driving profitable growth and translating into increasing shareholder value. We’re also driving additional shareholder value by returning capital to shareholders through our execution of our share repurchase program. I’m pleased to report that in less than one year, we fully completed our $60 million share repurchase authorization, buying approximately 4.1 million shares through May 9. Our Board and our team view repurchases as a good use of capital, boosting returns to shareholders, particularly in the current market environment. Our Board last week authorized a new $60 million share repurchase plan which we plan to execute in the same manner as the last plan.

Now, I’d like to talk about two topics to add perspective to our fiscal discipline and our anticipated performance throughout the year. As I mentioned, our capital is being deployed wisely with a high focus on organic growth, the element within our greatest control. Of course, we see the macroenvironment just like everyone else. We will watch it closely and manage our business with a firm focus on both operating environments, macro external and the micro within our direct markets. And to date, we’ve not seen adverse macro trends impact our business. Our philosophy is fiscally responsible capital management. This is particularly prudent in the current macroenvironment, and this is why we hold a significant portion of our cash and equivalents in government backed money market securities, offering a high level of safety and security.

This enables us to operate competently in all environments. We’re a data driven company, and always have been. Our decision making continues to be predicated on ROI. We plan growth investments each year, including deploying capital appropriately. We have the financial strength and flexibility to invest in multiple future growth initiatives at the same time. We have the data, expertise and financial strength to make informed, ROI driven decision. And we continue to see long term growth opportunities. Now, let me discuss the anticipated full year performance and point out the differences we expect compared to last year. While we’ve not communicated specific financial guidance for 2023, we’ve committed to continuing to grow our business at a faster rate than the estimated social casino market.

In Q1, we posted our fifth consecutive quarter of doing just that. We remain committed to this objective and are on track to achieve it this year. As a reminder, the summer months are historically slower in our business as the weather gets warmer as schools let out and vacation plans begin. We generally see less daily gameplay as people are outside enjoying the season. I’d also like to point out that we will incur additional expenses in 2023 over the run rates we had in 2022. The incremental expense began in Q1 of 2023 and will continue in the next three quarters of this year. Specifically, we grew our headcount last year in key areas to execute our growth strategy. In aggregate, we anticipate incremental spend of $14 million for the remainder of the year.

Additionally, as we previously noted, we expect incremental legal expenses of approximately $5.5 million to defend state allegations and legal matters. We just began to incur these expenses in Q1, leaving about $1.7 million per quarter for the next three quarters. Marketing spend timing is different this year as compared to last year. Our anticipated offline marketing expense of approximately $12 million will be spread more evenly across the year as compared to the $11 million we spent last year, which was predominantly weighted in Q3. To sum it up, we anticipate incremental expense of approximately $6.5 million in each of the next three quarters, totaling roughly $20 million. SciPlay is a disciplined and focused company with an industry best team.

We’re benefiting from our investments in scalable and proprietary systems that our people are leveraging for sustainable growth and market leadership. We generate a high percentage cash flow yield from our revenues. We invest our resources prudently for both the near and long term. Our team is aligned and focused on achieving three primary goals. One, outpace the growth in social casino market and take share. Two, expand margins prudently not at the expense of making investments in future growth. And three, generate significant and growing operating cash flows. These are SciPlay goals that we focus on every day. They are the keys to winning in the market, growing our business, and increasing shareholder value. We are off to a great start in Q1 and look forward to continuing on our path of sustainable, profitable growth.

Operator, you can open it up for questions now.

Q&A Session

Operator: [Operator Instructions] The first question comes from Ryan Sigdahl with Craig-Hallum.

Operator: Next question comes from Ben Soff with Deutsche Bank.

Operator: The next question comes from Aaron Lee with Macquarie.

Operator: Our next question comes from Franco Granda with DA Davidson.

Operator: The next question comes from Eric Sheridan with Goldman Sachs.

Operator: This concludes our question-and-answer session. I would like to turn the conference over to Josh Wilson for any closing remarks.

Josh Wilson: We’re off to a great start in 2023. We’re hungry. We continue to charge forward. We have so much more things we want to do and accomplish. A big thank you to all of our awesome SciPlayers players around the world. You’re amazing, and every day you prove it to us. I look forward to reporting on the progress in our second quarter call this summer. Thank you for participating.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.