Operator: Good day, and welcome to the SciPlay Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Trent Kruse, Senior Vice President of Investor Relations. Please go ahead.

Trent Kruse: Thank you, operator, and good afternoon, everyone.

During today’s call, we will discuss our third quarter 2019 results and operating performance, followed by a question-and-answer period. With me this morning are Barry Cottle, Josh Wilson and Mike Cody. Our call today will contain statements 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 information regarding these risks and uncertainties, please refer to our earnings release issued earlier this afternoon, the materials relating to this call posted on our website and our filings with the SEC.

We also will discuss certain non-GAAP financial measures. 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 press 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 and accompanying materials will be archived in the Investors section of our website at sciplay.com. Also, supplemental reference slides are available on our Investor Relations website.

While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company’s results and to be used as a reference document following the call. Now I’d like to turn the call over to Barry. Barry Cottle Thanks, Trent. Hello, everyone, and thank you for joining us today. Along with me are Josh Wilson, Chief Executive Officer of SciPlay; and Mike Cody, Chief Financial Officer of SciPlay.

As you’ll hear from the team, Q3 represented another quarter of above-market revenue growth and strong profitability. Our team is incredibly excited about the future given the strength of our games and untapped growth opportunities we have ahead of us, which you’ll hear more about during the call. With that, I’ll turn the call over to Josh and Mike to walk through the details, and then we’ll open up the call to questions. Josh?

Josh Wilson: Thanks, Barry, and good afternoon, everyone. Before I jump into our Q3 results, I wanted to take a moment to highlight the work we have underway to continue to enhance our results.

As you know, our mission is to become the number one casual mobile gaming company in the world. Our live ops team is pushing the envelope, driving monetization in our largest games and gaining great learnings to push to our other titles. We are adding significant and compelling new features across our portfolio including MONOPOLY, Bingo Showdown and Gold Fish. These enhancements were in soft launch late in the quarter and are now live, and we are happy with the results. With our access to the full scientific games IP library, we will be able to utilize several titles such as Jin Ji Bao Xi that are currently not in use at SciPlay and have great recognition in the international markets.

In addition, the team continues to review several exciting M&A opportunities, which will allow us to broaden our portfolio and leverage our significant capabilities around superior data-driven user acquisition, engagement and monetization to continue to drive industry-leading growth. With that, let’s move into the third quarter results. We’re growing at a rate that is well above market according to Eilers & Krejcik. Revenue for the third quarter grew 11% to $116 million, and we saw sequential improvement within the quarter. We saw a 9% increase in ARPDAU to $0.47.

Average monthly revenue per payer increased 11% to a quarterly record of $84.90. And we saw continued strength in our payer conversion rate at 5.6%. Our mobile revenue increased 18% with the penetration now at 84% overall. This is important as it allows us to reach more players on a more dynamic basis as they shift their attention from mobile to desktop. Our portfolio strategy drove strong revenue growth including continued strong results in our largest game, Jackpot Party.

This growth further reinforces social casino as an incredibly sticky genre with games generally evergreen in nature due to their loop-driven gameplay and ability to naturally incorporate a cadence of new in-game content and events. The growing popularity of SciPlay apps is reflected in our position as a top 3 social casino games provider and individual game rankings as all 7 of our core games are in the top 200 grossing mobile apps across iOS and Google Play. And we are incredibly proud that Jackpot Party has moved into the top 20 highest mobile grossing games regardless of genre in the September 2019 Social Gaming Monitor report by Eilers & Krejcik. Our team is committed to operational excellence to increase shareholder value and enhance our results moving forward. We are leveraging our relationship with Scientific Games to utilize its market-leading proven content library and operational support to deliver increased efficiencies.

We have above-market revenue growth, a road map for the future of growth opportunities, strong portfolio management in place to leverage our games, launch, ramp and growth plans and an efficient cost structure to enhance shareholder value. Now I’ll turn it over to Mike Cody to walk you through the financial information in more detail. Mike?

Mike Cody: Thanks, Josh. We delivered solid third quarter results with revenue increasing 11% year-over-year and AEBITDA increasing 35%. Mobile revenue increased $98 million, up 18% from Q3 2018.

Our revenue growth was driven by increased monetization of our paying players with ARPDAU up approximately 9% year-over-year to $0.47 from $0.43. Payer conversion rates increased to 5.8% from 5.5% in the prior year driven by growing player interaction in our games. Our average monthly revenue per payer reached a quarterly record of $84.90. Net income was up 170% to $25 million versus $9.2 million in the prior year, which included an $8.4 million contingent consideration expense. Net income margin increased nearly 13 percentage points to 21.5% versus 8.7% in the prior year.

This year-over-year increase is due to continued growth in revenue and the strong operating leverage of the business. AEBITDA was $32 million, which was an increase of 35%. And AEBITDA margins were 27.5%, an increase of 500 basis points from the prior year. We remain committed to our long-term goal to achieve AEBITDA margins of 35% while growing top line. Sales and marketing expense of $32.9 million represented 28.3% of revenue.

As we have always done, we operated with a portfolio approach, and we shifted our spend among games to maximize future returns. This marketing shift led to increased installs, which should lead to more opportunities to monetize these players in the quarters ahead including the upcoming holiday period in Q4 ‘19. We generated $33.8 million in cash provided by operating activities, which included a $3 million payment related to contingent acquisition consideration. We ended the quarter with $81.3 million in cash, which was an increase of $30.9 million from the second quarter. Available liquidity, including our undrawn revolver, was $231 million, giving us ample resources to grow the business.

We are confident we will deliver another solid fourth quarter with both sequential and year-over-year growth. We are revising our full year 2019 revenue guidance to $470 million to $475 million or 13% to 14% year-over-year growth. We are excited about the updates, features and events we have planned for the upcoming holiday season, and the long-term outlook for the business remains strong. With that, we’re happy to take your questions.

Operator: [Operator Instructions] Your first question comes from Bryan Kraft with Deutsche Bank.

Please go ahead.

Bryan Kraft: Hi. Good afternoon. Wanted to ask you, I guess, just on the change in the outlook. I assume that that’s related specifically to the payer conversion ratio coming down sequentially.

What’s the confidence? So assuming that’s true, I guess, what’s your confidence in being able to turn that around? And can you comment on how it progressed during the course of the third quarter and what you’re seeing so far in 4Q? Based on your comments, it sounds like Jackpot Party may be seeing some resurgence. So I wanted to see if you can comment on that. And then separately, you mentioned your long-term margin target of 35%. What do you think the time frame is realistically to reach that margin target? And what are some of the things that you have to do in order to – that have to play out in order to get there? Thank you.

Josh Wilson: Bryan, this is Josh.

So Mike and I will tag-team on this question. So I’ll kind of start with the first one. As you know, our seven core games are just – they’re evergreen in nature. Jackpot Party, which you did mention, did have a really strong quarter, actually broke into the top 20 of all casual mobile regardless of genre. But running these games are running five operations each and every day.

The issues that we saw in the – in the third quarter are normal live ops things that happen to us. The good news is they’re very temporary, they’re very fixable and they’re very common in this type of environment. It was only a subset of the games, three to be exact. And we do feel very confident that we’ll be able to get all of them back on their growing trajectory that we have seen in the past.

Mike Cody: And Bryan, this is Mike.

With that – to your point on guidance, we’re very confident we’ll deliver a solid Q4. Very comfortable with the range that we’ve provided. As Josh mentioned, we feel all of our games are solid, and we’re prepared as we enter the upcoming holiday season. And as you know, particularly the last weeks of the quarter are very important with the Christmas holiday. Our teams are working every day to keep growing the business and deliver the best results possible.

So we’re very confident in that range we provided. And then on to your 35% number, the long-term guidance on AEBITDA margins, we think of that like a 3- to 5-year range, things we need to do, our continued scale of the business from a revenue standpoint. And I think as you’re familiar with, we’ve talked about the life cycle of our games. And as they grow, the revenue and the margins will grow and our costs do not grow as fast as the revenue.

Bryan Kraft: Got it.

Okay. Thank you very much.

Mike Cody: Welcome.

Operator: Your next question comes from Shweta with RBC Capital Markets. Please go ahead.

Shweta Khajuria: Great. Thank you. Could you please talk to the growth rate that you saw in Jackpot Party versus maybe some of the newer games in the quarter? And then second, how – you do reference some of the new features that you’ve been adding to some of your games. Can you talk to what they were? I know it may be a little premature to quantify the positive impact from those. But what were they? Which gains were there for? And how do you think they could impact your – what’s the contribution in the Q4 guide from these features?

Mike Cody: Shweta, this is Mike.

I’ll take the first part of your question. So we don’t disclose our game-level returns. Josh did reference Jackpot Party had a solid quarter. We’re very happy with it. It did grow, but that’s about the extent of the game-level metrics that we’ll disclose.

And then I’ll turn it over to Josh to talk about your second part of your question.

Josh Wilson: So to kind of get into the second part of that, we have a few different ones. One that we mentioned – that we had talked about in the previous is we have done 2 rewrites with both Bingo Showdown and Gold Fish Casino. Both of those are launched and are expected to start seeing these returns in the fourth quarter this year. We have also released some new features in our MONOPOLY game, which we have seen good revenue growth out of the last 3 weeks.

And we feel confident that, that will continue to go through the fourth quarter.

Shweta Khajuria: Okay. Thanks, Josh and Mike.

Operator: Our next question comes from Mike Malouf with Craig-Hallum.

Mike Malouf: Great.

Thanks for taking my questions. Wondering if you can talk a little bit about how you see international impacting the growth rate. Do you think you’ll have any sort of acceleration in the fourth quarter? Or is this still more of a 2020 story? Just give us an update on how that’s going.

Josh Wilson: Yes. So Mike, this is Josh.

So we will not see a huge material impact in the fourth quarter as we’re in testing with two of our smaller games today, which are 88 Fortunes and MONOPOLY. Right now, we’re basically testing it on current population. Assuming that we see the results that we expect, we would look to ramp towards the end of fourth quarter and then move into the other games in the first half of next year.

Mike Malouf: Okay. Great.

And then can you give us some color on the impact to your desktop business with regards to the change in Chrome and its use of Flash?

Josh Wilson: Yes. So I’ll do my best here. Yes. As we know, Google deprecated Flash from the Chrome browser. And Chrome is, give or take, 65% to 70% of the browser usage today.

This did cause us to change the technology over. We did sustain a DAU loss from our web product for the users who could not move over to the new technology. We do believe it’s stable now, and we are no longer seeing loss from it. So we hope that we will be able to maintain the current players going forward.

Mike Malouf: Do you have any idea about what do you think it impacted you for the quarter?

Mike Cody: I think we could refer you only to what’s in the Q, and we disclosed our web revenue declining from 22.5 last year down to 18.7 this year.

And it would be implicit in those numbers.

Mike Malouf: Got it. All right. Thanks a lot.

Operator: [Operator Instructions] Your next question comes from Michael Ng with Goldman Sachs.

Michael Ng: Hi. Thanks for the question. I just wanted to follow up on the earlier question about payer conversion. It fell off relative to the first half. And I think you mentioned there were just a couple games that led to that payer conversion weakness.

Could you just elaborate a little bit more about which games those were and why the payer conversion dropped off? And where do you see that going from here?

Josh Wilson: Yes, Michael. So I can’t talk about the individual games because we do not disclose that information. It’s a mixture also of the web issue – or the web change that was made. As we all know, the web users, even though it wasn’t a growing population, they were very valuable users. So part of the – the payer conversion rate was brought out from there.

Our other games, to the most part, the updates that – sorry, sorry. A lot of the – what we’re seeing, we started to see improvements as we talked about the MONOPOLY and then coming up here with the Gold Fish and Bingo launches of their new technology.

Michael Ng: Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr.

Josh Wilson for any closing remarks.

Josh Wilson: Thank you for joining us today. We appreciate your support. And I want to thank our SciPlay team for their love of the games we make and most of all the millions of players that validate why we get up and go to work every morning. The team at SciPlay is committed to delivering strong results and returns for our shareholders.

As we look ahead, we are eager to execute on our winning strategy, explore new growth opportunities, keep improving our games and drive results. Our global team remains focused on delighting our players and becoming the number one casual mobile gaming company in the world. We look forward to updating you on our continued progress during our next call.

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

You may now disconnect.