Hello, I am Doug Creutz, Senior Media Entertainment Analyst here at TD Cowen, and I'm pleased to have with me here today, Craig Abrahams, President and CFO of Playtika. Craig, thanks for coming. Thanks for having us. Yeah. So, I guess we'll start. One of the highlights of your, of your Q1 was that you grew DTC revenue 13% year-over-year and 6% quarter-over-quarter, which also helped you grow gross margin to 110 basis points quarter-over-quarter. How have you accomplished that? Is it a function of driving the new players to the DTC platform, or are you able to convert existing players over as well? Sure. So our direct-to-consumer platform is a variety of channels that we use to allow customers to play directly on channels owned by us. I think if you look back at our history, going back to 2011, you know, we started off on 10 different platforms around the world, and we always wanted our customers to be able to play our games on any platform, anywhere, any screen size, whether it be a tablet, a PC, mobile device. I think we started investing, you know, three or four years ago into direct-to-consumer channels to allow our customers to be able to play with us directly. So I think when you look at titles like Slotomania, World Series of Poker, Bingo Blitz, some of the oldest titles, you'll see that we have very good penetration there. All, you know, five of the titles that are on direct-to-consumer today grew both sequentially and year-over-year. And I think when you look at how you convert those customers on whether it's, you know, a proprietary Android app or in a mobile web app or on the web itself, you know, how do you have that pipeline flow such that the customer has the least amount of friction is extremely important. Just so everyone knows, when you're on Apple or Android, the customer makes a $1 payment, we pay $0.30 to Apple or Google. When it's on our own channel, we're paying $0.03-$0.04 to the payment processor. So there's a significant advantage from a margin perspective, and then that allows us to invest in that direct relationship with those customers. And so we're constantly looking at ways to invest more there, and grow those channels, both in terms of new customers coming to the platform, as well as growing revenue with the existing customers. As we look to the roadmap for the rest of this year, we have both June's Journey and Solitaire Grand Harvest further launching their D2C initiatives, and we'll keep pushing there as well. So pretty exciting to us. It's pretty unique to us in terms of our overall penetration on direct-to-consumer. Historically, we've said that, you know, we have a 30% target in terms of where we want to get to, and we're starting to near that. Yeah, I think June's and Solitaire Grand Harvest are your third and fourth biggest titles by revenue. Like, what kind of a ramp would you expect to see with those on DTC over time? Sure. Well, we haven't given guidance there, but what I would say is that they will start out more slowly and that we're looking to maximize both organic traffic on platform as well as acquire new traffic off platform. And so we're pretty conservative in how we initially ramp that. But I think if you look and track our DTC revenues over time, you'll see that that growth has been very consistent. Okay. Talking about Solitaire and June's, they've been extremely successful acquisitions for the company, I think, but revenue for both games is up about 4-5x since you acquired them. What would you say it's been about those games in particular that have made them such successful acquisitions, and how does the experience there inform your M&A priorities? Sure. So just a bit of background in terms of M&A, we're a little bit different than most game companies in that if you look at our top 10 titles today, eight of them came through acquisitions, two of them were titles we developed ourselves. I think very early on, we realized that the video game industry is a hit-driven industry, and developing new titles takes on risk as well as a lot of capital. What we found is that our expertise was in live operations and marketing, and we were able to find great products that we can then innovate on and leverage our monetization capabilities to grow top line. And in this business, you know, 70% of that top line drops to the bottom line, and if on your own channel, you're looking at 96%- 97%. And so that's been our model that we've, we've embraced, you know, going back to our first acquisition in 2012. We've done 11 acquisitions since then. I think if you look at that cohort of acquisitions, kind of in the 2018-2019 timeframe, Solitaire and June's Journey were both, you know, great acquisitions in that they were categories that are evergreen in nature. One, You know, June's Journey is a hidden object game, which is very similar to Where's Waldo, if you think of, like, the, the gameplay mechanic and going back historically. Solitaire is one of the oldest card games played by, you know, tens of millions every single day. But what was traditionally played as more of, like, a green screen solitaire, what's traditional solitaire, where Solitaire Grand Harvest was innovative. It really laid out a meta-game where people had a farming mechanic tied into Solitaire, and there was progression. And I think what we saw is that our investment on live operations and investing in marketing there was able to grow us to the number one category leader, both in Solitaire and in hidden objects. So today, when you look at our overall portfolio, you know, eight games in the top 100 in the United States, five of those games are number one in the respective leadership category, including both June's and Solitaire. Okay. More recently, you acquired Youda Games and Innplay Labs, and, you know, how would you say those two studios fit in in the context of the last question? So we've always taken the approach that we want to invest in categories we believe are evergreen. Games that have been being played in the offline world for 50+ years, that people are gonna play in the online world for the next 20- 30 years. And that's always been our approach to gaming, not taking sort of the hit-driven risk around a game mechanic itself. I think when we looked at categories like Youda, Youda is in poker. We already have the number one game in poker with World Series of Poker. They had a larger presence in Europe, and the ability to kind of grow there, as well as, you know, our help on the live ops side. What we've seen there is consistent growth since we acquired it and acquired it at an attractive multiple. I think when we look at Innplay, it's a different style acquisition. Well, let me just take a step back just to wrap up on Youda, you know, that transaction was a corporate carve-out of a public company, proprietary transaction. So I think it also shows our ability to kind of, you know, find assets hidden within large companies and carve them out. Then when you look at Innplay, it's a very different type of asset. It was a growth business in Israel. Obviously, Playtika is based in Israel. We have good relationships there, have been tracking Animals & Coins. Their leading game for some time. And it's an opportunity for us to significantly invest in marketing and scale that game. And we've had good progression there as well. So two different types. One was more value-oriented, the other one more growth-oriented, and it kind of plays to our overall portfolio approach. When you're approaching a target for M&A, I mean, when I think about the video game industry, M&A, typically there's an upfront price, and then generally there's an earn-out based on success. Obviously, you guys have had some very big success with the studios you've acquired, and I would think that might give you a competitive advantage in terms of talking to acquirers and saying, "Hey, look like you've got this potential earn-out. We've had a great track record of helping studios grow. You should come with us." Is that, do you feel like that's a competitive advantage for you? Yeah, that, that is part of the pitch and part of our... I I think, believe what our competitive advantage is, is that we can help businesses grow more quickly, being a part of the Playtika umbrella, rather than on their own. And obviously, risk sharing through a, an earn-out is a way of doing that. It also helps mitigate our risk as well as maximize their upside, and so it benefits both parties. Talking about social casino for a minute, you know, the performance there has been a bit challenging. You, you were down high single digits in 2022 and 2023, though the last few quarters trends seem to be getting better. Do Do you think that's a market segment that can get back to growth, and what will that take? Sure. So when I look at this casino theme segment, specifically the slot theme games, it's a very competitive market, but what you do see is that there are a couple of players growing and taking share from others, and so I do think there's healthy competition. If you look back at our strategy the last few years, we pulled back on marketing in those slot theme games to invest more in casual titles as we're looking to grow those titles. So some of that, I believe, is our own strategic decision. Now looking at it, obviously, we've lost share, and now we need to defend that share. I think when you look at our last quarter and talking about increasing marketing in Slotomania and trying to stabilize Slotomania as well as the other slot titles, I think on us, there's a couple of things we need to do: invest further in product, be more competitive there, as well as invest more in marketing and gain back some share. So I do believe that, you know, we will stabilize that business and we'll make the appropriate investments. I think as you look at those businesses, you have to look at it kind of on a year-to-year basis. Quarterly, you know, given the games roadmaps and strategic initiatives, it does take time. But I think as you look at trending year-over-year, you will see more stability in that segment. I think, you know, that will, while that part of the business is more mature, I think when you look at the rest of the business and the growth potential of the rest of the business, it's the benefit of having a large portfolio. Okay. Your revenue mix is around 70% U.S. and 30% rest of the world. Do you think there's room to expand the international contribution of your portfolio, and what are some of the things you can do to achieve that? Sure. So I think there's always room to expand internationally. You know, if you look at the business we started with, it was mostly on casino theme games, mostly based in the U.S. When you look at the overall business, we do focus more on Tier One markets. So U.S., Canada, Germany, U.K., Australia are some of our top markets. And I think what we've done, you know, like geo takeovers in places like Germany, in local language, with local celebrities and influencers and TV campaigns, we have been successful there, and that's something that we'll continue to pursue. I think when you look at just how much of our business is domiciled in the U.S., it's hard to kind of move the needle there. But I think we're always looking at further overseas expansion. I think Youda is another great example. You know, you saw the bump up in E.U. revenues, it came from Youda, and then acquisition and their market share there. Is casino just more U.S. slanted in general, or is that specific to your games? I think for slot-themed games, it definitely is more U.S.-centric. When you look at poker, it is more of a global game. Okay. Okay. What are two of the three, two or three things that you are focused on to get the company back to a more consistent growth trajectory? Is it just finding good M&A targets and executing, or are there other things you can do? Sure. Well, as we mentioned earlier, M&A is a critical component in terms of layering on growth. When I look out, you know, in 2026, I think what will define our growth will be looking at the acquisitions we did in 2023, 2024, 2025, in terms of layering on, layering on growth. So that is a key component, but also taking our core portfolio, investing in marketing, driving efficiencies, and expanding the portfolio through other strategic initiatives. I feel like, you know, is where our focus is. But in terms of where we're going to get the most return, it's definitely M&A. And I think if you look at our capital allocation strategy, we recently announced, you know, half of the free cash flow is dedicated to M&A. So I think that, that's where we are differentiated from a lot of our competitors, in that they're investing in new games, probably have lower margins as a result, but that, but they have that growth driver. We're taking, We have higher margins. We're taking that free cash flow and investing in M&A. How is the market for M&A right now? I mean, obviously, we've been through a period the last couple of years where there's been a lot of layoffs in the industry. You know, mobile had a stretch there where it wasn't growing. Now, it does seem to have gotten back to a growth trajectory recently. I think, Circana just reported again, there was double-digit mobile growth in the U.S. in April. You know, is it an attractive marketplace, or are people looking for a home, or is it getting more bubbly again? Yeah, no, I think, I think 2021 was obviously a very bubbly year, and that was a tough year to, to try and get deals done. I think since IDFA was passed and companies have had more challenges growing via marketing, it's created more opportunities for M&A, and I think that's where, you know, last year we were successful with two transactions. I think as we look forward, I think we still see it as an interesting market. I think we're well-positioned, in that we have $1 billion in cash on the balance sheet. We have a $600 million revolver. And if you look at most of the other competitors that were doing acquisitions, there's since been consolidation, and so a lot of them are now out of the market. If you look at some of the undercapitalized companies that are smaller, it's not as attractive a market if you go and raise financing. And given the significant amount of free cash flow we generate every year, that helps us continue to be in a position to continue to do transactions. Okay. There's been a lot of discussion about regulating, you mentioned Apple and Android, whether it's through allowing third-party app stores, creating other payment mechanisms, lowering take rates. I think Microsoft has said, you know, they're looking to create a, their own mobile app store, and there's been some discussion that Sony may be moving in that direction as well. Obviously, a significant amount of your business is already DTC, but you still are driving a lot of revenue through the mobile app stores. Is this an area where you see the potential for improved economics over the next few years? I think it's an area for upside, but it's not an area we control, so we can't spend a lot of time on it. I think if you look at what happened in Europe this year with Apple, we obviously are a beneficiary of lower take rates, with platform fees, dropping down from 30% down to 20%. And so there is a benefit there. We'll see what happens in other jurisdictions, but again, it's not something we can control or plan for. Do you think if take rates do come down, that to a certain extent, that winds up getting competed away through higher marketing spend across the industry? Obviously, if everybody's LTV suddenly jump up, right, and your, your, your ability to spend is dependent on your LTV. I, I worry a little bit- Yeah ... that some of that, some of that benefit might just get passed on to the mobile ad guys. I agree with that for new companies. I think for a company like ours, where, let's say, 90% of the revenue is from older cohorts, that benefit will accrue to the operator. But you're right, for new acquisitions, you arguably have a higher LTV, therefore, you could pay a higher, a higher CPI for new installs, and therefore, some of that margin may get eroded. But for mature players, I do think it would be a clear benefit. Okay. If we look at your sales and marketing spend, I think six-seven years ago, it was a high teens% of revenue. Then it moved up into the low 20s, which I think was a function of you expanding your casual business, and now it looks like for 2024, it's probably gonna be in the mid-20% range. Can you talk about what have been the drivers? I mean, I think portfolio mix is one, but any other drivers of that increase in marketing spend, and do you feel like you're gonna be at a level this year that it should be sustainable over the next few years? Sure. So I think as the industry has matured, people have had to spend more on marketing and, you know, over the last 10 years, you see cost per installs consistently going up. I think people realize that mobile is the form factor of the future. It is where people will be playing games, and people underestimated the value of mobile consumers in terms of their LTVs, and so I think those install prices have gone up. I think we've historically been very disciplined about our margins and have not overspent on marketing. I think as we look at our positioning today, and the need to grow, we are investing more in marketing to drive that growth. I think in a competitive market, where we have significant market share, we need to protect our leadership positions and, for the new titles, we have to invest in growth. So I do think there is a new normal from a marketing perspective. That said, we made the adjustment this year. We took down in our guidance the margins that we have for this year, and I think this year should be more of a model of what it looks like going forward. But again, it's hard to say what changes we have in the industry. I do think what always gives me optimism is that there's so much innovation within the ad tech industry, that that innovation helps us through, you know, AI and machine learning to, you know, bring CPIs back down again. And so I think that, that would be our hope. Is there a path to get back to that low to mid 30% margin range that you had been at? Is that just mainly gonna be driven by revenue growth or are there other things you can do? So I think it's also the mix of the portfolio. When you have just mature titles, obviously, the margins are higher, but when you're investing in growth and new titles, it brings that margin down. And so I think as we're constantly layering in new opportunities for growth and making those investments, it offsets some of the higher margins of the more mature titles. And so I don't see, you know, I think because we're investing in growth for the future, you'll consistently see margins more at the levels we're at today. But again, we'll give guidance for next year at the end of this year. Yeah. Another area of cost pressure that I think the industry as a whole had seen was just the talent market a couple of years ago was incredibly tight. Is that changing? Are you finding it easier to hire talented people now? And maybe you could also talk about how your geographic mix of studios in a lot of different areas affects your cost structure. Sure. So we have seen wage inflation over the last few years. We've augmented that through leveraging our Eastern European jurisdictions, places like Romania and Poland and Ukraine. We've been, you know, shifting employees around, you know, post-conflict, and that has created some of that. But we've also reduced our employee count over the last few years as we've focused on efficiency. And I think now we're at a good size and from a company employee perspective, and it's more focusing on growth from a top-line perspective. And so I don't know that. Yeah, we'll continue to see the type of inflation we saw the last few years, but it definitely is an industry, I think, facing all technology companies. Yeah. Okay. I think you guys, when you went public, you had a long-term cash compensation plan for your employees. And I think next year, correct me if I'm wrong, will be the first year that you'll have been shifted to a fully equity compensation plan, which should help your non-GAAP EBITDA margins. Can you talk about how big of an impact that could be? And then, how should we also think about your formula for how much stock-based comp to give out in a given year? Sure. So it's a good question. Our long-term cash compensation plan does end at the end of this year. We are amidst the planning process, in terms of how much savings we'll have going into next year as a result of our restructured plan, how much is cash versus stock. It's too early to say on that. I think we'll give guidance at the end of this year, for next year, how much potential savings is there. But it's clear that we're going to need to, you know, invest in our employee base to retain top people. Okay. And then, you alluded to it earlier, in the last few quarters, you've instituted both a share buyback and a dividend. And can you just give a little more color about how that fits in with your total capital allocation strategy and how you view buybacks versus dividends, given that I'm guessing you think your stock is probably pretty undervalued in the market? So we've been very thoughtful around how we come up with a framework for investing in growth as well as capital return to our shareholders. We've allocated 50% of free cash flow for M&A and 50% for capital returns. We initiated a dividend a few quarters back, which is around $150 million a year. Sure. If you look at the remaining portion, we just announced an authorization for a $150 million buyback. We plan to use that buyback to offset dilution from our equity awards. And so I think as we execute our M&A strategy, as we stabilize our casino theme games, as we focus on execution in the business, it allows our shareholders to receive a dividend, to be paid for their patience in that process, and us to execute with the total return story. So I think we're well-positioned. It's a good balance of return and growth, and obviously, it's just a framework. It can go up or down either way, based on opportunities. Have you found that the dividend has maybe opened up some conversations with investors who are value-oriented, who, you know, that's one of the criteria they look at? We'd hope so. I mean, that's part of the intent, and hopefully, with the meetings we have here today and going forward at these conferences, it'll be an opportunity to bring in new shareholder base. Okay. Happy to take a question from the audience, too. Anyone who'd like to ask? Quiet. No. Just thinking of other questions to ask. Maybe, maybe talk a little bit about, you know, you guys went through a strategic process looking at, you know, potentially being acquired or other, other opportunities, and you, you ended that relatively recently. Can you, can you talk about, in hindsight, sort of how that went and, and anything you might have learned from it? You know, everything there is, is disclosed publicly. We announced a process about two years ago, evaluating strategic alternatives. And the end of last year, that came to an end. I think as a result of that, we announced our capital allocation strategy. So I think it really gave us an opportunity to think through and communicate clearly with shareholders the strategy going forward in terms of capital return, as well as M&A. I think that there's really nothing else I can comment on that process. Yeah. You mentioned your strategy with M&A, wanting to read last month. When you acquire something, what's your vision for that three years out for revenue growth, EBITDA contribution, actually investment, as opposed to just adding a few bucks to just the platform? How does the growth go well, that you look for that make that game better? Sure. So I think we're always looking to be number one or number two in every category that we're in. We're looking to create industry-leading franchises. They're going to be around 10+ years. And so in doing that, there's significant investment in content, making it much more compelling for the customer to come back and want to play that game every day. We're doing it in terms of monetization, to drive higher conversion, to get more of that paying player base, to be active in the game and paying within the game, and to keep them sticking around for a much longer time in terms of increasing retention rates. So strategically, what we bring to the table is being very analytical and thoughtful around how you measure those things and how you execute on those things. And I think that's why we've been so successful in terms of our ability to, to both increase retention, increase monetization, increase engagement, build the brands on television. And I'm sure many of you probably have seen our ads for either Bingo Blitz or Solitaire Grand Harvest or Slotomania on TV, turning these into industry-leading franchises. And so I think that's what we bring to the table. When we look at the acquisition from a financial perspective, we're really thinking about how can we grow this in a way where we effectively make the multiple low single digits or mid-single digits and make it an attractive entry multiple for us, by growing revenues, and as I mentioned earlier, with 70%-95% of the margin dropping to the bottom line, we can quickly grow EBITDA. I think we're very thoughtful around how we make this a good investment for our shareholders, as well as how we make this a good franchise that is going to last for the ages, because it is not helpful for us to invest in something where it grows quickly and then falls back off again. It's about something that can sustain the test of time. So if you just throw out an average, it produces 25% more revenues X years down the road, or Y% more EBITDA? I mean, if you're looking at Solitaire Grand Harvest or June's Journey, you're talking anywhere 4-5x in terms of the revenue growth when we acquired it, so pretty significant. Revenue growth, yeah. I think if you look at a game like World Series of Poker, you're talking over probably 10x. I mean, these are big, big changes from we acquire them over long periods of time. Obviously, those acquisitions were done many years ago. So I think when we're looking at current acquisitions, it really depends on the stage of maturity of where it is. In some more mature games, it might be about much more nominal growth than that. But for growth titles, we're definitely thinking about how do we 2- 3x this game that we're acquiring. All right, I think we've reached time. Craig, thank you very much for being here today. Great. Thank you, Doug.