SciPlay Corporation (NASDAQ:SCPL) Q4 2022 Earnings Call Transcript

SciPlay Corporation (NASDAQ:SCPL) Q4 2022 Earnings Call Transcript March 2, 2023

Operator: Good morning and thank you for standing by. Welcome to the SciPlay Fourth Quarter and Full-Year 2022 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 fourth quarter and full-year 2022 financial results and operating performance, as well as our outlook for 2023, 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, everyone. I’m very happy to be with you today. SciPlay is on a multi-year journey guided by our vision to spark the world’s passion to play by providing the most engaging digital entertainment experiences. We know where we are going and we are aligned on how we’re going to get there. This resulted in record KPIs and propelled us to outpace the market in both the fourth quarter and full-year. I’m extremely proud of our teams and what we have accomplished. Our strong execution and ability to adapt have enabled us to successfully navigate industry dynamics and achieve strong performance in 2022. We are innovative, agile, and extremely motivated to win and focused on delivering amazing experiences for our players and maximize shareholders value.

Now for some key results. First, we delivered impressive top-line results, growing revenue 18% in the fourth quarter, and 11% for the full-year. This was fueled by our industry-leading execution, our live ops, and our data-driven product roadmap. We achieved this growth despite the challenging industry backdrop as our talented teams remain focused and continue to innovate. Second, we achieved a number of records, including growing our payers and our average monthly revenue per payer underscoring the quality of our earnings performance. Third, we generated robust cash flow of $150 million for the full-year. This demonstrates the high cash generative nature of our business. And four, as of February 24, we have returned $41.7 million to our shareholders through our stock repurchase program.

We are confident that our strong foundation, combined with multiple growth initiatives, will drive us to post strong gains and outperform the market again. Now let’s take a closer look at Q4. We delivered strong fourth quarter performance demonstrated by our industry-leading results with our evergreen franchises leading the way; we generated record revenue and attained multiple records in Q4. In Q4, our social casino games grew 14% year-over-year, while the social casino industry is estimated to have declined by more than 3%, and we have achieved record KPIs including payer conversion of 10.4% and ARPDAU of $0.87, which grew 18% year-over-year. Based on Eilers & Krejcik social casino game tracker report published in January of 2023, SciPlay was cited as “standout performer of the year” in the fourth quarter, estimated to achieve the fastest growth of the top 15 game developers and we did just that.

Our Q4 performance was driven by our growth in payers of 13% year-over-year, and to provide longer-term perspective, payers have grown by 42% since 2017. We now have the most payers in SciPlay’s history. We have invested in our games, and we will continue to do so. As we execute on our product roadmaps to deliver the best possible entertainment to our players. The strength of our evergreen franchises and our differentiated go-to-market approach have fueled SciPlay’s success. Here are just a handful of examples. Jackpot Party smashed our single day revenue record, and Q4 was a record quarter capping a record year. The game is now listed by Eilers & Krejcik as the number one U.S. ranked social casino game. Quick Hit Slots officially became the second $100 million revenue game in SciPlay’s portfolio.

It is one of the fastest growing games in social casino. Goldfish Casino is gaining momentum from our re-imagined features and new live ops strategy. And 88 Fortunes benefited by adding a new economy, content design, and innovative features, which are driving increased player engagement. As a result, SciPlay outperformed the entire social casino market in 2022. Let me repeat this. As a result, SciPlay outperformed the entire social casino market in 2022. Our accomplishments have been powered by a combination of innovation, capabilities and investments. We have a scalable platform, unparalleled technology, and deep talent that form a runway for both current and long-term success. In 2022, the SciPlay engine became one of our main drivers of success.

We implemented and optimized it across our game portfolio. The SciPlay engine provides a wide range of optimizations and real-time solutions. The combined knowledge and expertise of our best in industry ad tech, data science and analytics team have led us to develop an innovative UA solution that is aiding in our winning performance today. Our global analytics team developed and deployed algorithms that decipher of breakdown complex player behavior. Our live ops teams consistently develop and execute unsurpassed monetization strategies. These are driving industry-leading growth. Data science and analytics use together with player behaviors, enable us to drive conversion, retention and increased player engagement. SciPlay continued to evolve our data-driven approach.

We made several noticeable advancements that boost our ad tech capabilities by combining team learnings with multiple data sources, predictive analytics, and valuable in-game advertising strategies. We implemented predictive analytics tools and exclusive technology that focuses on revenue generation with custom tailored user experiences by detecting player patterns that maximize their lifetime value. We employed integrated predictive player modeling to improve player behavioral insights and data quality. These strategies have driven improved insights on the players and drive higher return. Now, let’s turn to the future. As we propel into 2023, SciPlay has strong momentum with multiple growth drivers. We will continue to evolve, scale, and grow our franchises.

Our main growth drivers will be to increase our payer base, their engagement time, and the amount of money our players will spend. In essence, the combination of our innovation, capabilities and investments will enable us to continue closing the ARPDAU gap with our peers. Our robust data-driven product roadmap are evolving our evergreen franchises. Our proprietary tech solutions provide valuable insights about our players, the features they want, and the economies that drive them. We continue to evolve our franchises as we implement new events, features, and content accessible from Light & Wonder’s extensive IP library. Our live ops teams create new engaging events for our players every day. These produce high monetization results and our recent launch direct-to-consumer platform, which allows us to deepen the relationship with our players to push higher LTVs, reduce acquisition costs, and drive long-term margin expansion.

Our strong execution in 2022 is continuing in 2023. SciPlay’s success and ability to deliver consistent values cemented together by our team’s expertise, our culture, our dedication, and our passion to win. Our global team truly leveled up in 2022. Thank you SciPlayers around the world, we had an amazing year. I’ll close by saying I’m confident in our team’s continued strong execution and the strength of SciPlay’s business model and growth. We plan to outperform the overall social casino market and take share in 2023. Now, I’m pleased to turn the call over to Daniel.

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Daniel O’Quinn: Thanks, Josh. Good morning, everyone, and thank you for joining us today. 2022 was a great year for SciPlay with outstanding Q4 results. We carried out our plan presented in the beginning of last year and achieved our full-year financial targets for both the top and bottom line. We invested in our core capabilities and we reinforced our foundation for the future. Our teams were focused and agile, successfully navigating industry dynamics, while executing our product roadmaps. I couldn’t be prouder of what our teams have accomplished. Their energy and innovation are unparalleled, and they’re the reason why we’re able to achieve so many all-time records. Our success enabled us to make a competitive leap in social casino significantly outgrowing the market.

Now, for some key highlights. First, we delivered strong financial performance in Q4 and the full-year propelled by our evergreen franchises and our team’s exceptional execution. SciPlay achieved several all-time records, while innovating and adapting to a challenging marketed environment. Second, we had record ARPDAU and a record number of payers, which we grew sequentially each quarter during the year, underscoring the momentum and quality of our earnings performance. Third, SciPlay continued to make key strategic investments in targeted segments of our business, including proprietary technologies and talent to further strengthen our long-term growth plans. Four, SciPlay continued to be a high cash generating business. We delivered robust operating cash flow of $150 million in 2022, and repurchased $42 million or roughly 70% under our share repurchase program through February 24.

Now, let’s get into some of the details. We generated strong fourth quarter revenue of $182 million, an all-time record, up 18% year-over-year and 7% sequentially. Full-year revenue of $671 million grew 11% also setting an all-time record. Our social casino games grew 14% in the fourth quarter and 7% for the full-year. This significantly outperformed the market that is estimated to decline 3% in both the fourth quarter and full-year. We generated fourth quarter net income of $53 million for 29% margin and full-year net income of $151 million. Diluted earnings per share attributable to SciPlay was $0.32 for the fourth quarter and $0.91 for the full-year. We grew our fourth quarter EBITDA 24% to $59 million, while achieving a 32% EBITDA margin fueled by our strong top-line results as we moved past the marketing innovation spend in Q2 and Q3.

EBITDA of $187 million was up slightly for the year, while our EBITDA margin of 28% was in line with our target. As we invested in our talent, the SciPlay engine, ad tech, and our DTC platform to drive long-term value. Since 2017, we’ve grown revenue at a 13% CAGR and profitability at a much faster pace, with an EBITDA CAGR of 22% over the same period. Now, let’s turn to some key performance indicators for the fourth quarter where we achieved a number of records. In the fourth quarter, we grew our payers 13% year-over-year to a record and we saw increases in payers throughout the year. Our ability to consistently deliver great and engaging content enabled us to achieve near record average monthly revenue per paying user of approximately $99 in Q4 and $95 in the year.

This marks our 11th consecutive quarter above $90. This all translated to a record ARPDAU of $0.87 in Q4, an increase of 18% year-over-year, as we continue to close the gap with our peers. We achieved a payer conversion rate of 10.4% in the fourth quarter and 9.6% in the full-year, also both all-time records. Our KPIs built throughout the year underscoring the benefits of our key initiatives, robust product roadmap, best-in-class live ops capabilities, and our player loyalty. As an example, players who downloaded Jackpot Party before 2019 are more engaged and had higher retention during 2022. Like our long-term revenue and profitability growth, ARPDAU has grown at a 14% CAGR over the last five years, while our peer conversion rate grew at a 13% CAGR over the same period.

Now, let’s turn to cash flow. We believe strong revenue growth, faster growth in AEBITDA, combined with strong cash flow, are key drivers of shareholder value. The great thing is our business is highly efficient and cash generative. For 2022, we generated $150 million in operating cash flow, which included $24.5 million payment for the Washington State Matter. We have minimal capital expenditures enabling us to convert a high percentage of operating cash flow into free cash flow. We ended the year with strong liquidity of $330 million in cash and total liquidity of $480 million. We had the financial strength and flexibility to deploy excess capital to drive increasing shareholder value. Now, let me take some time to discuss capital allocation.

We continue to see opportunities to invest organically in our business and we’ll also consider targeted inorganic opportunities. And these include Aqua hires as well as small game developers where we see an opportunity to enhance engagement and monetization with our best-in-class capabilities. But we make these investments with the financial rigor and an eye on returns. We employ a data-driven approach to ensure that our investments are driving profitable growth and shareholder value. We also believe the combination of organic growth, strong cash flow generation is fundamental to enhancing shareholder value. Accordingly, our Board authorized a $60 million two-year share repurchase program in 2022. To this date, we’ve repurchased $42 million or roughly 70% of the authorization in 10 months.

Let me close my comments today and speak about the opportunity we see ahead in 2023. We’re well-positioned to continue to take share in social casino and deliver shareholder value. The marketing innovation campaigns we started in 2022 will continue into this year. From a seasonality standpoint, the campaign spin last year impacted Q2 and Q3. This year most of the innovation spin will happen in the first quarter. The highly successful Jerry O’Connell campaign that ran for Quick Hit in January and February will be discussed in our Q1 call. In summary, our global team of more than 800 SciPlayers is executing at a high-level. We have a strong foundation for continued growth and we’re determined and highly motivated. We have the passion to win. Thank you.

And now, I’ll turn the call over to the operator and we’ll take your questions.

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Q&A Session

Operator: Thank you. Well, I’ll begin the question-and-answer session. . First question will be from Eric Sheridan, Goldman Sachs. Please go ahead.

Eric Sheridan: Thanks so much for taking the question and thanks for all the detail in the prepared remarks. Josh, I want to come back to some of the comments you were making on user acquisition and the repositioning of the company and the platform from a marketing standpoint. Both idiosyncratically and what you’ve built, how much of a competitive advantage should we be thinking about in terms of the quantification of the ability to outgrow the market or possibly outearn competitors from an ROI standpoint? That would be part one. And then number two, away from what you can build internally, any update about the way you’re thinking about broader marketing ROIs in the gaming sector. You’ve spent a lot of time experimenting and trying new avenues in the last 12 months, 18 months. So curious for an update there as we look out to 2023 and beyond? Thanks so much guys.

Josh Wilson: Yes. Thanks a lot, Eric. It’s great to talk to you today. We could not be more proud about our UA team, our entire growth team as a whole. We knew coming into 2022 that it needed to be a major investment for us, and we did that. We doubled down on our ad tech capabilities. We doubled down on how we are using data to create player profile. Our UA team and our retargeting team really just leveled up their games. And with that, built new tools that really are sustainable and keeping us ahead of everyone else. We do continue to believe that we will outperform others in our returns, mainly for two reasons, because the way that our philosophy is on spending money, it’s about getting the most value for every dollar. We’re not chasing installs.

We’re not chasing mal. We are chasing value for this shareholder. And since our entire team thinks this way, we’ve been able to get these returns. But it’s not just the UA side, it’s also the games themselves. Our games through the implementation of the SciPlay engines, some of the reorganization we did, and just more heightened focus on running the live games. We’ve been able to significantly increase our LTV across almost our entire portfolio in 2022. And it continues to look really, really good in 2023. So the way I think I intend to hit that last question was spot ROI. This is honestly how we think of everything we do. Everything we do is an ROI. So whether or not it’s how we look at how we spend money, how we look at how we spend time, it is what can we do to maximize the play experience of every user we bring into our ecosystem.

And what can we do to keep them playing and being entertained by us instead of wanting to go anywhere else. And if the results of 2022 show anything, I think we’re doing a really good job.

Operator: Thank you. Next question will be from Drew Crum, Stifel. Please go ahead.

Drew Crum: Okay. Thanks. Hey guys, good morning. So Dan, you addressed in your prepared remarks some of the investments and timing around marketing campaigns in 2023. What does that translate to in terms of your expectations for just EBITDA margin relative to where you ended up for 2022? That’s the first question. And then, maybe for Josh, the paying users have historically ticked higher in 4Q versus 3Q. That metric looked like it slipped a little bit this past quarter on a sequential basis anything noteworthy there? And typically you see sequential growth in paying users for 1Q over 4Q, should we anticipate a similar seasonal trend line for the early part of 2023? Thanks.