Good day and thank you for standing by. Welcome to the Playtika Q3 2023 Earnings 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 first speaker today, Tae Lee, SVP of Corporate Finance and Investor Relations. Please go ahead.

Welcome, everyone, and thank you for joining us today for the third quarter 2023 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 the call. We have posted an accompanying slide deck to our Investor Relations website, which contains information on forward-looking statements and non-GAAP measures, and we will also post our prepared remarks immediately following the call. For a more complete discussion of the risks and uncertainties please see our filings with the SEC. With that, I will now turn the call over to Robert.

Good morning, and thank you, everyone, for joining our call today. Before we speak about our business and financial results, I would like to take a moment to address the current situation in Israel, which has affected us all. As you are aware, Israel has recently faced a tragic and senseless act of terrorism that has left our heart heavy with grief. Fortunately, I can report that all Playtika team members are currently accounted for and safe. However, it tense me to know that some of our colleagues are experiencing a grief for having lost loved ones. Our hearts go out to them, and we offer our deepest condolences and support. We are committed to ensuring the safety of our team, the success of our businesses and our unwavering support for our community. We conduct significant operation in Israel and most of our senior management is based in our Herzliya office, with most corporate functions led from the U.S. We have approximately 1,100 employees in Israel which represents approximately 29% of our global workforce. As from this week, about 14% of our colleagues in Israel have been activated from the Israeli military reserves. As we continue to closely manage this situation, we have begun our business contingency planning, and we will make necessary adjustments as situation progress. Currently, our team members in Israel are mostly working from home with support from our colleagues across the global offices of Playtika. We have moved a limited number of employees from Israel to Poland and Romania to provide redundancy in case of situation in Israel escalates. Our technology infrastructure stands as a critical pillar supporting the performance of our game, ensuring uptime and redundancy. Many of our games offered on our private clouds, which are maintained through two data centers in the U.S. and other data center in the EU, supporting corporate infrastructure. We want to emphasize that the Company with the history of operating in regions facing geopolitical challenges, we believe we are well prepared to navigate the challenges with the war in Israel. We remain committed to safeguarding our operations, our employees and the interest of our shareholders. We have faced adversity before, and we have always emerged stronger and more united. I will now turn it over to Craig to speak about the quarter.

Thank you, Robert. Before we dive into the business and financial results for the quarter, I would like to highlight our recent strategic acquisitions of InnPlay Labs and Youda Games. Our acquisition of InnPlay offers an expansion into a new exciting Luck Battle genre with a growing player base. InnPlay is an Israeli-based company, known for the recently branded title, Animals & Coins. Animals & Coins is an emerging title with high-growth potential, and we structured the earn-out to be reflective of our goal to fuel this growth profile. This transaction is a testament that our footprint in mobile gaming hubs around the world continues to benefit us as we evaluate local M&A prospects. Earlier in the quarter, we also announced the carve-out acquisition of the Youda Games portfolio known for their largest franchise, Governor of Poker. We are encouraged by the fact that we not only acquired this portfolio at an attractive multiple, but it is also EBITDA accretive on day one. This transaction has an earn-out structure in place to incentivize the team to maximize EBITDA contribution and focus on profitable growth. This transaction also serves as a testament to our proficiency in executing complex acquisitions. In this instance, we successfully acquired an asset of another business in a region where we lacked an existing footprint while enhancing our portfolio with a proven franchise. As we look to next year, we have a positive view of the M&A market conditions and remain committed to capitalizing on favorable opportunities. The robust free cash flow generation of our business model and large cash position enables us to self-finance our acquisitions, which is a competitive advantage in the current market environment. Furthermore, I am also excited to highlight our recent partnership with Netflix, where we launched our internally developed title, Ghost…

[Operator Instructions] Our first question comes from the line of Aaron Lee of Macquarie.

I wanted to touch on your acquisitions of Youda and InnPlay. Just at a high level, can you just talk a little bit more about the overall strategy there? And how much marketing support you tend to support these games with? Just trying to better understand if the opportunity is more about revenue synergies or just running these games a little bit more efficiently.

Sure. Thanks for the question, Aaron. I think both acquisitions are very different. InnPlay is a growth asset where we see a lot of potential and a very interesting new genre, that's a title where we intend to ramp up marketing and invest and grow. And I think if you look at the deal documents that were posted alongside the deal, you'll see that it was structured in a way to allow us to invest and grow that asset. I think when you look at a title like Governor of Poker and Youda Games, you're looking at a much more mature portfolio that's established and it's an opportunity to leverage our live ops expertise and further optimize and help grow that business. And so I think -- and that's a business that's EBITDA accretive at day one. So I think each opportunity is very different. One was more attractive on a relative valuation perspective, with a more mature franchise and the other one is an asset that we'll continue to invest in and grow.

And also wanted to ask about your -- the user acquisition tools, you mentioned last quarter, the AI-based solutions. Any color on the status or impact of those tools? Are they performing how you expected? Or do you think it might need some more refinement.

Thanks for the question. It's Nir Korczak, Playtika CMO. So basically, as we said before, this is an ongoing process that we're going to keep leveraging AI for internal tools. We do see some improvement in some of the area, but we are keep testing it parallel to the other tools. But I can tell that going forward, we will keep using AI tools into the marketing activity on the daily -- on an activity basis.

Our next question comes from the line of Arthur Chu of Bank of America.

This is Arthur on for Omar. So I have a question on the DTC platform. I think you guys probably already have the highest DTC penetration in the industry. A lot of your peers see your DTC penetration sort of as benchmark. I was just wondering like how should we think about the potential for more uptake longer term? Like do you have sort of a longer-term target in mind? Just anything you can -- kind of help us to think about, that would be super helpful.

As we spoke a few quarters ago, always, we target to 30% of our revenues. And until now, we are on target. We're growing this year. So we're feeling very confident about the future of DTC. And this year, we are launching a Solitaire, we're launching a June's Journey and we believe it will help to grow the percentage. But again, this is a very powerful tool of Playtika. This is a tool that we started a few years ago, and it's a big advantage of us, not only by revenues is by our ability to be more free and more independent on ourselves.

Our next question comes from the line of Eric Sheridan of Goldman Sachs.

I know it might be a little early to talk about next year. But in terms of what's being implied in terms of an exit velocity for the business, can you unpack a little bit of the elements of acquired games developed games internally? And how should we be thinking about the growth algorithm for the business exiting 2023, against maybe a broader view of what you think the end market or the industry might grow as we move into next year.

Thanks, Eric. So our focus continues to be executing on our largest franchises and investing growth there. Solitaire Grand Harvest, June's Journey, Bingo Blitz, reinvesting in Slotomania, continuing to be the number one slot game in the category, we're also working on reestablishing our leadership position in slots to our central slots strategy, the opportunity to really efficiently cross pollinate all of our titles with our best slot content and then layer on M&A. We just did two acquisitions this past quarter. I think the market environment is such that with high interest rates depressing valuations, plus the more challenging marketing environment for smaller studios, combined with our large cash position and free cash flow we generate, we're very well positioned, to continue acquiring great assets. And so I think that's really where our focus is going to next year on the earnings call for Q4 in February. We intend to give guidance for '24 but at least strategically, hopefully, that gives you a sense of what we're planning.

Our next question comes from the line of Colin Sebastian of Baird.

Glad to hear everyone on the team in Israel is safe and know that you're in our thoughts. I guess, first off, given some of the sequential trends in the business, maybe it would be helpful to provide some additional context on where you see the health of the broader market and what you're seeing maybe from your competitors, and related to that, regarding the additional performance marketing spend, is that something we should think that -- or we should expect more of as well through Q4 -- and is that sort of part of the stabilization plan for the core franchises?

Sure. So Q3 seasonally is the slowest quarter of the year. So I think looking at sequential comparisons are sometimes challenging there, invest to look kind of year-over-year. That said, the quarter was probably most impacted by the performance of Bingo Blitz. Bingo Blitz is our biggest title. I think as you look at sort of -- if you look at third-party sites and look at more recent performance over the last several weeks, you'll see that, that title has bounced back. And so I think -- if you look at our guidance for the year that we provided, you'll see confidence there. And as we look going forward, we'll continue to invest in our biggest titles where we see the best growth potential and best ROI. So I think as we look at the industry more broadly, big brands, large franchises that can invest more materially in marketing definitely have an advantage and you see performed kind of better in the rankings. I think that positions us quite well and then combine that with our M&A capabilities in a mature market that's consolidating, we feel pretty well positioned.

And anything -- any comments on sort of the pace of performance marketing spend?

So regarding the performance marketing, basically, this was part of our strategy from the beginning, focusing more on quality versus quantity. So in some of the games where we see a potential from performance marketing side, we will keep investing on that, nothing special that we can add right now.

[Operator Instructions] Okay. I'm showing no further questions at this time. Oh, actually, we just had one pop-up there. One moment while I pull this one up. This question comes from Matthew Cost of Morgan Stanley.

Team. This is Dave Nwokonko on for Matthew Cost. I was wondering if you could speak to expectations on any differences in performance versus social -- performance of social versus casino games heading into next quarter and maybe into '24.

Yes. When we are reporting, we're always speaking about social casino and nonsocial casino. But we, as a company, and we said in the past, we're always looking game by game. And this is our strategy, how we're running our games. So there is -- even in the social casino aspect, there was -- and like Craig said before, with Slotomania, has become very stable, and we fixed many things in the last quarter. And we see a future in -- it only depends where we're putting our marketing money -- where we decide to put the marketing money. And when we see potential of growing, it doesn't matter the social casino or casual or other kind of game. This is where we're doing this. So until now, we are happy with what's happening here on social casino. We're happy -- more than happy about what's happening around the Slotomania because this is our biggest title in this genre, and we see a good future for this.

I'm showing no further questions at this time. I'd like to thank you for your participation in today's conference. This does conclude the program. You may now disconnect.