Robert Antokol - Co-Founder, Chief Executive Officer Craig Abrahams - President, Chief Financial Officer Eric Rapps - Chief Strategy Officer David Niederman - Investor Relations.

Good day and thank you for standing by. Welcome to the Playtika Second Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, David Niederman. Please go ahead..

Welcome, everyone, and thank you for joining us today for the second quarter 2022 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’d 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.

These statements and other comments are not a guarantee of future performance, but rather are subject to risks 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. For a more complete discussion of the risks and uncertainties, please see our filings with the SEC. We have posted an accompanying slide deck to our Investor Relations website and we’ll also post our prepared remarks immediately following the call.

With that, I will now turn the call over to Robert..

We have a diversified portfolio of top-ranked games, and we have demonstrated the ability to manage our games for the long term. We own leading games across five different categories, and we have nine of the top 100 highest grossing mobile games.

We pride ourselves in having long-term player loyalty and strong engagement and continue to drive strong conversion, which was over 3% in the second quarter. Our proven business model and DNA of our unique approach to game ops is at our core and very much suited for this environment and for the long term.

This leads to the stickiness of our player base and results in the majority of our revenue coming from players from previous year’s cohorts, some as early as the year of launch. Our technology and in-house capabilities are robust. We have our own in-house ad tech platform with an AI-driven algorithm for ad-spend optimization.

We have our Direct-To-Consumer platform that has a strong positive impact on our margins. We’re seeing continued D2C platform momentum, with 23.3% of total revenues now coming from this platform, up from 20.4% in the second quarter of 2021. And we have our proven monetization strategy enabled by our powerful Live-Ops platform.

We continue to execute on growing our casual portfolio, with 10% year-over-year growth which was, offset declined by gains in our casino-themed portfolio. Our adjusted EBITDA margin improved by 360 basis points quarter-over-quarter. Adjusted EBITDA was up 8.3% from last quarter and down 9.6% versus a year ago.

As we look to the remainder of the year, I am confident in our business and our position in the market. The skills and technology we have built over the past 10 years gives us an upper hand, and the capabilities to win in the market. In order to compete and win, we will continue to optimize our resources with a strong focus on adjusted EBITDA.

We are very calculated and strategic on our investment decisions as we focus on long-term growth. A recent example is relocating Best Fiends to Israel and Poland, where we believe teams are better positioned to drive future growth. Developing three new games in our pipeline with one set to launch this year.

Continuing to grow our ongoing core franchises. Making smarter investments in marketing and R&D. And finally, making Playtika an amazing place to work and to build a career while employing the most talented and best of the best. I’ll now turn it over to Craig who will provide more detail on these initiatives and our second-quarter financials..

Thank you, Robert. Revenue was $659.6 million, up 0.1% year-over-year. Adjusted EBITDA was $238.9 million, down 9.6% year-over-year, while up 8.3% versus the prior quarter, as margins improved 360 basis points sequentially. This sequential improvement was supported by our broad-based focus on cost across the company.

I’ll provide some specific details on our efforts when we discuss our income statement. During the quarter, revenue across our Casual games portfolio grew 10.0% versus a year ago. This was led by solid performances by June’s Journey, Solitaire Grand Harvest, and Bingo Blitz,.

Junes Journey, from our Wooga studio, enjoyed its best ever quarter, growing 34.2% versus last year, driven by strong performance from the rollout of the albums feature, as well as enhanced LiveOps throughout the quarter.

In addition, Solitaire Grand Harvest was up 6.3% versus a year ago and had record number of installs during the quarter following the Mega trail enhancement, running of tournaments with the new monuments feature, and offline campaigns including television with Dr. Phil as well as billboards.

Additionally, the game’s Grand Album feature launched in July, and we’re excited about the momentum in this title.

Bingo Blitz grew 2.3% versus a year ago, driven by a successful roadmap of activity in the quarter including the April Fool’s Day mini celebration, Bingo 90 and the dynamic quest rewards system enhancement, along with several offline campaigns. Casino portfolio revenue for the second quarter was down 9.5% versus a year ago.

Caesars Casino grew 1.5% versus last year with successful feature rollouts throughout the quarter. While World Series of Poker was flat versus last year, we are excited for the future of WSOP, on the heels of our first partnership campaign with the UFC.

Together, we will be teaming up for a series of online and in-person fan-focused campaigns aimed at merging the worlds of poker and UFC. House of Fun was down 22.0% versus a year ago.

To improve return on investment, we made changes in the structure of the studio and personnel, revised its marketing strategy with reduced UA spend and reassessed new feature rollouts.

Lastly, Slotomania was down year-over-year consistent with the overall Casino portfolio versus a year ago due to a product roadmap that was less impactful than expected, along with additional impact from current market conditions.

Turning to operational metrics, Average Daily Payer Conversion increased 28 basis points year-over-year to 3.2%, ARPDAU increased 5.9% year-over-year to $0.74 cents and average DPU increased 3.5% year-over-year to 310k average daily paying users.

Turning now to some updates across our portfolio of games, we’re excited to start marketing Merge Stories in the fall. Merge Stories is an innovative hybrid game that combines the core merge game mechanic with casual build and battle elements and was built by our Jelly Button studio, creators of Board Kings.

In addition, we also have two titles in soft launch testing through the back half of the year. Regarding marketing, we focused on efficiency and ROI in the second quarter, shifting more of our online spending to our casual portfolio, and moderating offline expenditures at the margin.

This resulted in a decline in CPI sequentially while maintaining eROI levels compared to Q1. This is a great example of how our marketing teams combine technology, process and experience to achieve results. Now, I will provide some more color on our offline campaigns.

In our Casual portfolio in Q2, we launched the second wave of our Meghan Trainor campaign for Bingo Blitz, and continued to work with Dr. Phil on promoting Solitaire Grand Harvest while further integrating across print, broadcast and outdoor.

Looking ahead, in the third quarter, we are excited about our campaign launches with new celebrity partners to promote Bingo Blitz and Jane Seymour for Solitaire Grand Harvest, in addition to several other campaigns across multiple channels.

In our Casino-themed portfolio, we continued to partner with Sharon Stone for Slotomania, Ty Pennington for Caesars Casino and Laurence Fishburne for World Series of Poker. As we mentioned last quarter, investing for growth remains a top priority for us in 2022.

We are strategically investing where we see strong returns and pulling back where we don’t, shifting resources to better growth opportunities. We will remain nimble and continue to focus on games where we see potential to become a $100 million franchise or greater.

With the challenging economic environment, we will be opportunistic with potential acquisitions where we can leverage our live operations know-how given our strong balance sheet and consistent strong cash flow generation. Now turning to our P&L, Gross margin decreased 32 basis points year-over-year to 71.8% from 72.1%.

This shift was driven by increased amortization expenses primarily related to capitalized software costs and newly acquired intangible assets. Helping to offset this impact, the percentage of revenue flowing through our own direct-to-consumer platforms increased to 23.3%, up from 20.4% in the second quarter of 2021.

Our direct-to-consumer platforms continue to be a competitive advantage and strong source of margin. Turning to our operating expenses, I’d like to provide some insight into some specific drivers of our sequential adjusted EBITDA margin improvement.

In the second quarter, spending on sales and marketing was lower compared to Q1, driven by lower spending on both offline marketing and also user acquisition. Additionally, in Q2 we started to execute against closing operations in Montreal and London, and shifting our operations in Los Angeles and Helsinki to Israel and Poland.

These actions did not have an impact in Q2, but will drive savings in the second half of the year. As a reminder, the Montreal and London closures are directly related to our decision to prioritize new game development in our high performing studios in Berlin and Tel Aviv, and those studios have three exciting titles in the pipeline.

Finally, in Q2 we started to slow the pace of new hiring across the organization. While we will continue to limit hiring to key positions, we are being measured in our approach and are closely managing overall personnel growth.

R&D expenses increased by 36.4% year-over-year, driven primarily by increases in labor costs, this increase is due to both growth in headcount and increases in compensation expenses for our employees as we discussed on our Q1 call. Regarding sales & marketing, expenses increased by 3.6% year-over-year.

As I detailed earlier, we were pleased with the efficiencies we achieved in the second quarter. G&A expenses increased by 46.9% year-over-year. When compared to the same period last year for the first six months of the year, G&A expenses increased by 6.1% year-over-year.

The increase in G&A expenses for the quarter are driven by increase in labor costs due to higher headcount and employee compensation costs, as well as an increase in contingent consideration that did not exist in the same period last year. GAAP net income was $36.4 million compared to $90.0 million in the prior year quarter.

Adjusted EBITDA was $238.9 million, representing a margin of 36.2%. This compares to $264.4 million and 40.1% in the second quarter of 2021. As of June 30th we had approximately $1.2 billion in cash and cash equivalents and over $1.8 billion in available liquidity to fund growth opportunities.

Our effective tax rate for the first half of the year was 26.2%. Looking out to the remainder of the year, for the full year 2022 we expect a revenue range of $2.60 billion to $2.66 billion and adjusted EBITDA of $900 million to $940 million. We are moving towards a range for guidance given the challenging economic backdrop.

We continue to expect 2022 capital expenditures of $140 million. In closing, we continue to make investments in our future, including new content and features in our existing games and across our new game development pipeline.

We will continue to remain nimble and strategic with our investments and believe we are well positioned with a resilient business model in this environment. We are actively managing costs, becoming a more efficient and streamlined organization with a continued focus on generating strong EBITDA margins and robust and sustainable cash flow.

All of this is made possible by the power of the Playtika team, and we would like to thank our employees across the globe for their continued efforts to bring mobile entertainment to the masses. With that, we would be happy to take your questions. .

Thank you. [Operator Instructions] And our first question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Please go ahead..

Hi everybody! Thanks for taking the questions. Two if I could. On the revenue guidance, Robert, I think in the prepared remarks you mentioned that there seems to be some weakness in consumer spending.

I guess in terms of what you saw over 2Q and you know quarter-to-date in the second quarter, how is player behavior changing? Is this really a monetization issue while engagement remains strong or is it a combination of those two things and how do you see that kind of trending through the rest of the year? And then on the margin front, obviously as you mentioned, a big step-up in margins in the second quarter.

I believe the guidance implies....

Matt, we could not hear the second question..

Sorry about that.

Can you hear me now? Hello?.

Yes, sorry Matt. We heard only the first question, and it was....

Okay. I guess the second question which is on the margin front, you mentioned a step-up in margins pretty significant in the second quarter. I think the guidance implies similarly high margins in the second half, down a little bit.

So I guess given that the benefit of the studio reallocation to Poland and Israel is going to take place in the second half, are you anticipating a step-up in marketing in the second half to kind of offset that? What are the puts and takes in that margin guidance for the second half? Thank you..

So thanks. So two long questions, we'll talk about the first one. So yes, we saw Q2 – during Q2 – we started actually Q2 very strong in April, but then we saw in May and June that people are a little bit more worried, playing a little bit less, paying a little bit less, and it seems like the post-COVID is already it’s here, a year after.

But the good news, and this is really good news for us that the July already much better than June. So we see for Playtika yes, we got hurt a little bit on Q2, but already we started good Q3. So again, I cannot say exactly what's going to happen this year.

You know I cannot predict the economy issue, it's not in my hands, but I can say that we are right now doing what I said in the call, that we are focusing on adjusted EBITDA, we are focusing to make the company more efficient, we are focusing to bring the marketing, to work with the marketing directly to better ROI than it was before.

So we're doing all the important stuff on our hand, but as I said, July was better than June, so we are feeling much better now..

Sure. And Matt, on the second half of your question on margins, our implied guide, both at the high and low end of the range has an increase in margin versus our prior guide that is driven by some of the efficiencies we've taken throughout the company in the second quarter.

We will get the full benefit in the back half of this year, as well as consolidating the new game studios to really focus on those with a clear track record in Israel and Berlin. And by doing that we'll see the efficiency in the second half of the year as well. So that's really where it rolls in the implied guide for the second half.

From a marketing perspective, you know there is no planned increase from where we sit today. Obviously we are reallocating budgets from those titles with a higher ROI, away from those with a lower ROI and so I think we'll continue to make those adjustments through the year, but I don't expect a step-up in the back half from a marketing perspective..

Great! Thank you..

Thank you. And our next question comes from the line of Eric Handler with MKM Partners. Your line is open. Please go ahead..

Good morning! Two questions. First, you know Slotomania is by far your biggest game. You said some additional weakness in the second quarter.

What can you do to sort of get that back on a positive growth trajectory?.

Sure. So you know Slotomania I think was impacted by the overall maturity of the Casino game business and it was – you know the trends we saw in the second quarter, I think we are encouraged by the road map there and what we're doing with that game.

Obviously in July we've already started to see some benefits there with some new features, and so I think we'll continue to focus on the road map and product innovation, and that's what's driven Slotomania historically and we'll continue to drive it going forward..

Great! And then just as a follow-up, I'm curious what type of EBITDA to free cash flow conversion you think is reasonable at this point, and as you streamline operations, is that going to help that conversion at all, too?.

Sure. So I think as Robert mentioned, we are focused on adjusted EBITDA and driving our margins as we operate the business. I think the second layer to that is capital expenditures and you know looking for efficiencies there this year and then going forward. Our guide for this year on the CapEx side is $140 million.

We'll be looking for efficiencies there as well moving forward. So I think those are the primary two levers. Obviously, our effective tax rate around 26%, there's not much we can do there and so it's really on us to drive margins and be efficient from a capital spending perspective..

Okay, thank you..

And our next question comes from the line of Clark Lampen with BTIG. Your line is open. Please go ahead..

Thanks a lot. Two for me. Maybe for Robert or Craig, I wanted to put a little bit of a finer point on the guidance for the year. Robert, when you were talking about improvement across the business, is that on sort of a month-on-month, sort of July has improved relative to June.

And as we think about the back half of the year, should we expect revenue dollars to sort of grow in both 3Q and 4Q as we think about sort of arriving at guidance for the full year? And then Craig, the $140 million of CapEx that you called out, could you unpack that a little bit, sort of what's driving that up from a dollar standpoint year-on-year.

And also, it seems like there is an expectation of higher spend over the back half of the year. So anything you can provide there would be great. Thanks..

So regarding the revenues, yes. As I said, July was better than June. To tell you that I know what's going to happen in the economy in the world; it's going to affect us, I don't know. But I know that because of the changes in the world happening in the last few months, we did many, many new things in the company. We changed how we think.

We changed how we work, not dramatically, because we always worked efficient. We're working with small groups, which as Craig said, we are focusing on the – by marketing only in the places that we have a really good ROI, and we are fighting. We are fighting and we see very good results.

So I think again, I cannot predict how the world behaves, but for me to focus is to go up slowly, slowly, to be flat, not to go down and to finish this year in a good way as we said in the beginning..

Yes, so the high end of the range that we forecasted here is flat for the year given the seasonality. If you look at last year and some of the seasonality in the third quarter and fourth quarter, I think what will offset that is how we've spread our road maps throughout the year.

And then obviously the bottom end of the range implies about a 1% decrease month-over-month given the economic conditions, so I think we've put out a range for that. From a CapEx perspective, you know second quarter was up around 3% year-over-year.

Obviously it is a big jump from a capital expenditures perspective, and this year again, some things are one-time in nature, whether it was server upgrade or infrastructure related to our offices and opening new offices as well. I think some of that will go away into next year and obviously we'll provide guidance on that at the appropriate time..

Thank you. And our next question comes from the line of Jason Bazinet with Citi. Your line is open. Please go ahead..

I just had a question on App Store fees. This sort of migration to direct-to-consumer up to 23%, how – what sort of a natural rate in terms of the ceiling of how successful you can be on that front? And then second, I think investors should be optimistic about getting some relief from App Store fees.

It feels like there's been some news about some players getting some relief and some antitrust scrutiny on sort of App Store fees. If you can just give any color, that would be great..

Sure. So today, about half of our portfolio is on our own direct-to-consumer channels. The upside there is really going to be from rolling out in new titles, and we're working on that with plans to do that through our Casual portfolio over time.

In terms of what we're seeing across the industry, you know there's been a variety of other genres of entertainment that have seen App Store relief. It hasn't yet happened within games.

But obviously, you're quoting a trending of things that we've seen in other categories and other types of services, whether it's subscription, but in terms of in-app purchase and games, we haven't seen that break free..

Okay, thank you..

And our next question comes from the line of Stephen Ju with Credit Suisse. Your line is open. Please go ahead..

Thanks guys. So I think the growth between your daily active and monthly active users continues to diverge. So is that generally due to a change in mix toward Casual or do you think this is just external factors, you know greater travel, economy, the war, etc.

And I think looking forward I think at the time of the IPO, I think you talked about gains in the pipeline. We got Switchcraft and Merge and I think you guys have also talked about two in soft launch. So should we think four more are remaining in various stages of development or has the pipeline moved away? Thanks..

Thanks Stephen. Why don't we take the pipeline question first. So we have three titles in the pipeline today. One, parts of which is Switchcraft, and then two others, one from our Jelly Button Studio and one from our Wooga studio that will enter soft launch later this year and that we're excited about.

We did as we mentioned consolidate studios, and by closing London and Montreal, obviously there were titles in the pipeline that have been eliminated and we're not going to comment on titles in the pipeline that are kind of more future dated beyond over the next 18 months.

And so the other part of the question?.

About the divergence of the daily active and monthly active user growth, is that mix or are there other resources?.

I think one change from a marketing strategy perspective that's affected the user base is focusing on higher-quality traffic in Tier 1 markets and in doing so obviously that you'll see monetization increase there. I think from a – we've always talked about DAU and MAU aren’t necessarily the KPIs that we're focused on.

It's the engagement of the daily paying users, and you know conversion there continuing to drive that is key for us..

Thanks..

Thank you. And our next question comes from the line of Aaron Lee with Macquarie. Your line is open. Please go ahead..

Hi, good morning! Thanks for taking my question. You continue to build up a healthy cash balance.

In terms of inorganic growth, how does the M&A market look in terms of valuations and opportunities? Have things gotten more attractive?.

Yes, hi! This is Eric Rapps, the Chief Strategy Officer. So what we can say is things have gotten more attractive.

I would say that the disconnect that existed between the public and private markets, you know that disconnect started to bridge, but I wouldn't yet say that everyone acknowledges the current economic backdrop, and I think where expectations do remain high, it's largely the product of people thinking that this current trend may not be as long as some others think.

So we're starting to see it a little bit, but in other places it's still elevated..

Got it. And understanding your focus is more on Casual games, but do you think you can take share in Social Casino this year? Just given how the operating environment has gotten tougher, it seems like the larger players should be able to adapt faster and outperform. Just curious on how you're positioned there? Thanks..

Yes, so I think Social Casino is an interesting category. I think where there are assets that we think there is an opportunity to further monetize and grow those businesses. You know we'll obviously look at them and take a hard look.

I think in the absence of that we'll continue to focus more on casual, but we're going into an interesting environment right now and ultimately we're going to pursue where we think there's the most value to be had..

Understood. Thank you..

And our last question comes from the line of Franco Granda with D.A. Davidson. Your line is open. Please go ahead..

Yeah, hi everyone. Thanks for taking my question. So like all of the privacy changes related to iOS impacting everybody in the space, have you seen your AI models change? You cited CPI declines and ROI being steady? And then if you could give us some thoughts and your assumptions on ROAS and your online campaigns for the rest of the year? Thanks..

Sure. So going to the first one, you know we're not going to go into detail about how our AI models have been constructive and the nuance is there. But what I can say is our AI team has rebuilt them from scratch, focused on a post-IDFA world.

We've adjusted the time horizon at which we’ve looked at ROI and those models have been very effective for us, and we use them on a daily basis to allocate budget.

Do you mind just repeating the second question on ROAS?.

Yes, I was just wondering what your assumptions are on ROAS for the online campaigns for the rest of the year?.

Yes, what I can say is that [Technical Difficulty] how our ROI has performed in the last quarter. It's improved across multiple different time periods in about 80% of the portfolio, so we're very happy with how our ad spend is being deployed right now.

And I think what's driving that is both, a combination of very effective marketing, but also superior monetization abilities..

Alright, thank you..

Thank you. And this does conclude our question-and-answer session. Ladies and gentlemen, this also does conclude today's conference call. Thank you for participating. You may now disconnect.

Everyone, have a great day!.