PLAYSTUDIOS, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Play Studios Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded today, November 11, 2021. I will now turn the call over to Joel Aganal, Corporate Secretary and General Counsel.

Thank you, Operator, and hello, everyone. By now, everyone should have access to our third quarter 2021 earnings release, which is available on the Play Studios website at www.playstudios.com in the investor section. Before we begin our formal remarks, we need to remind everyone that some of management's comments today will be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including those regarding our future plans, our mergers and acquisitions strategy, strategic and financial objective, expected performance, and financial outlook. Forward-looking statements are statements about future events and include expectations and projections, not present or historical facts, and can be identified by the use of words such as may, might, will, expect, should, anticipate, or other similar terms. Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. These forward-looking statements are made only as of the date of this call. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During the call, management will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2021 earnings release on the www.playstudios.com website and on our Form 8K filed with the SEC today. Hosting the call today, we have Andrew Paschal, Play Studios' Chief Executive Officer, and Scott Peterson, Chief Financial Officer of the company. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Andrew.

Thank you, Joel, and good afternoon, everyone. Welcome to the Play Studios third quarter earnings call. We're going to cover several topics in depth today, including our results for the quarter, our views on the current state of the market, and the future growth drivers of our business. But before we get started, I want to take a quick moment to reaffirm our vision and unique market position. I think it's worth highlighting that we're at a moment in time where consumers' patterns of behavior have been wildly disrupted. The global pandemic has created more physical isolation, resulting in new and more highly evolved forms of digital engagement. Video conferencing, OTT media services, games, e-commerce, home delivery, cryptocurrencies, NFTs, and the promise of the metaverse are pulling us in a digital direction that continues to displace real human interactions and experiences. It's our view that these dynamics have intensified people's need for real-world engagement and heightened the need among businesses to deepen their relationships with their consumers. And this is where we've positioned our company. It's a bridge that connects the digital and real world. By crafting captivating games, we've amassed millions of loyal and engaged players. And by incorporating loyalty mechanics with compelling rewards, we've connected them to hundreds of real world leisure businesses. This is our vision, to strengthen our position as the leaders in rewarded play. And it's through this lens that I'd encourage our stakeholders to evaluate and qualify our past results, our current position and our future potential. With that said, let's touch on our recent performance. We're seeing positive momentum across most of our key metrics. Year-to-date revenue is up 4.7% to $215 million. Adjusted EBITDA for the quarter was 9.6 million, 185% increase compared to the second quarter of 21. ARPDOT was 65 cents, an increase of 20.4% compared to the third quarter of 2020 and up 5.3% sequentially. Daily payer conversion was 2.8%, up approximately 40 basis points compared to the third quarter of 2020, and up approximately 10 basis points sequentially. And we also saw an increase in our loyalty program activity as reward purchases returned to pre-COVID levels with 570,000 purchases in the quarter versus 288,000 for the same period last year, a 98% increase. Scott will be sharing and qualifying some of the more specific financial metrics later in the call, but I'd like to offer some perspectives. on the overall state of our market. The overall market for games continues to grow, topping an estimated $175 billion. And with thousands of games being launched every month, the competition continues to intensify. In short, there are more players spending more money playing more games than ever. However, accessing this market and acquiring players has become significantly more complex. The early days of open and affordable access to players has evolved into highly optimized distribution channels controlled by a more limited collection of platforms and ad networks. This is exemplified by the recent changes Apple made to its consumer data and targeting capabilities. The deprecation of IDFA has, for the moment, resulted in higher acquisition costs, stressing the models for acquiring consumers and growing an audience. It's our view that the companies with deep data science capabilities are best positioned to compensate for these changes by applying alternative and far more sophisticated methods of scoring and targeting players. In addition, we feel companies that have established networks or alternative and nontraditional access to potential players will have an advantage. For these reasons, our investments in our business intelligence discipline and our expansive network of real-world partners will serve us well. It's also worth highlighting that we've seen more moderated growth across the social casino market. As we reported, our revenues were consistent sequentially, outperforming some of our peers who were off slightly quarter over quarter. When considering these market dynamics, along with our vision and plans, we believe we are uniquely positioned. More specifically, our strategy calls for us to develop and acquire new games and new genres that we can demonstrate our loyalty lift across a broader collection of products. As we've shared, we plan to do this through a variety of approaches, including joint development, publishing, and strategic M&A. We're also focused on developing the technologies, features, and tools needed to evolve our Play Awards program into a platform and suite of services for the broader games industry. Making this transition will enable the company to accelerate its growth, minimize creative risk, improve our margins, and ultimately drive substantial value. Given this focus, it's worth touching on some of our primary initiatives. So let's start with corporate development. We're intensely focused on advancing our M&A efforts. As we've highlighted, positioning the company with the capital and resources we need to find and acquire strategically significant companies was the reason for going public. As we mentioned on our last call, we stepped up our efforts and expanded our corp debt capabilities with the hiring of Jason Han. Since then, we've qualified a number of opportunities and participated in several form of processes. And while we've yet to consummate a transaction, we're excited by the range of possibilities we're actively advancing. We continue to firmly believe that acquiring companies that impact our scale, diversify our game portfolio, or advance our platform position are the best allocation of our resources. And I can assure you we'll be responsible stewards of your capital as we seek the right targets at the right valuations with the right strategic benefits and returns. As for our growth, we're focused on bolstering our core portfolio as well as advancing new game initiatives. To this end, we continue to invest in the content, features, and tools needed to sustain each of our franchise games, MyVegas, Popslots, and MyKanamiSlots. Our players expect a steady and consistent flow of new slot content, engaging metamechanics, and compelling live events, along with a rich portfolio of real-world benefits. When we deliver to these expectations, we excite our audience and stimulate activity. Throughout the quarter, we were able to hit most of our product milestones – However, there were factors that in some cases impacted the scope and timing of our deliveries. As I'll discuss in a moment, we're intensely focused on improving our productivity and expanding our development capacity, which we believe are critical to optimizing the performance of these franchises. In March, we launched our first casual game, which we jointly developed with Boss Fight Entertainment, My Vegas Bingo. The product would quickly scale to over 100,000 daily active players, allowing us to qualify the game and assess its potential. As I shared during our last call, the engagement and monetization metrics were encouraging, but the stresses of a larger audience revealed some technical challenges that were limiting our growth and UA productivity. Boss Fight spent much of the last quarter tending to these hurdles. In the meantime, the team's done a great job introducing innovative events, such as our Jane Lynch Celebrity Caller Series, allowing us to service and retain the highly engaged players while we prepare for the game's next phase of growth. We believe in this product and continue to feel it can achieve its forecasted 45 million of annualized revenue at maturity. Next up is Kingdom Boss, our first published game in the RPG category, also from Boss Fight Entertainment. The game is a stunningly rich and immersive role-playing game with an art style derivative of their popular dungeon boss aesthetic and gameplay modeled after the category leading AFK arena. The product was originally expected to launch in early summer, but as conveyed during our last earnings call, we pushed the targeted launch to the fourth quarter to allow for more refinement and performance optimizations. There's still work to be done, and our partners are now hopeful that the game will be ready to launch by the end of the year. In addition to our game initiatives, we're investing considerable resources in our Play Awards business unit. We continue to refine the features, tech, tools, and teams needed to optimize the impact of rewarded play within our existing games. This will provide us with the firsthand experience and reference data needed to resolve our loyalty as a service commercial model. Once validated with our own portfolio, we intend to invite more game developers and publishers onto our platform and command the share of the lift the program generates. Executing on this strategy is complex and demanding. As I've just shared, it requires us to tend to the needs of our existing apps, adopt new games, and advance the Play Awards platform. Servicing the ever-expanding demands of our existing products requires more development output. Scaling our development capacity is proven to be challenging and expensive in the primary tech hubs where most of our studios are located. This trend presents an opportunity to create a more diverse and resilient global team with a more favorable cost structure. With this in mind, in the past year, we've scaled teams in both Belgrade and Vietnam, employing over 125 new playmakers, all focused on servicing our existing products. These new team members and studios will complement our existing teams and help them execute and deliver their ambitious product plans. It's also worth touching on the structural effects of COVID. It's been covered extensively. COVID forced many companies to close their offices and transition their teams to working from home. We've always placed great emphasis on collaboration, shared learning, and employee growth. But after 18 months of work from home, We appreciate more than ever the connections, cooperation, and active participation that's needed to maintain our creative standards, optimize our execution, and elevate our performance. We've invested considerable time exploring new hybrid work models and soliciting our team's input. In the coming months, we'll be refining this model to accommodate the flexibility that our employees now enjoy while also providing more consistent opportunities for collaboration and growth. Okay, so I've provided our perspective on our current pace. the shifting conditions of our market, our strategic priorities, and our focus on operational execution. Before I turn the call over to Scott, I want to summarize and reaffirm why I remain so optimistic about our business. I'd encourage you to keep the following in mind. Our Play Awards program continues to grow with engagement, purchase, and redemption volumes returning to pre-COVID levels. The company is in its early cycle in pursuit of compelling M&A targets and has the resources needed to source meaningful opportunities. We're expanding our development output by scaling our capacity in new markets with deep pools of amazing talent. Our studios are reopening, allowing us to reconnect, collaborate, and reinvigorate our teams. Our core game franchises are resilient, enduring, and have meaningful potential. We have new game initiatives that are advancing and should soon contribute to our operating performance. And the company is getting traction with ad monetization and advancing new and compelling options that will open up new sources of revenues. I also want to reaffirm and highlight the extent to which our interests are aligned with our investors. I, along with our founders and employees as a group, own nearly 40% of the company. We take into account our responsibility to all of our stakeholders as we assess our performance, qualify our strategies, we set our priorities and decide which opportunities to advance. In every case, we make decisions that we feel will reinforce the enduring qualities of our business model and drive mid and long-term growth. And to the extent we find more immediate opportunities that align with our strategy, we'll pursue them with conviction and speed. Lastly, we believe our valuation today in the equity market is fundamentally dislocated from fair value. While we believe that the best use of our capital is to deploy it in strategic M&A opportunities, we'll continue to assess the benefits of purchasing our own equity. Accordingly, the board has approved a stock repurchase plan providing for the repurchase of up to $50 million of our shares over a period of 12 months, positioning us to execute a buyback program should we deem it appropriate. Furthermore, as the founder, chairman, and CEO directing our company's strategy and growth, I will, just as soon as the trading window opens, put a 10B51 program in place and begin buying shares in the open market, as will other members of our management team and board. We're firm believers in our strategy and feel our current price in no way reflects our opportunity. I'll now turn the call over to Scott to provide more specifics on the financials. Thank you, Andrew. As Andrew mentioned at the top of the call, we reported $70.6 million of revenue during the third quarter of 2021. Like last quarter, year-over-year quarterly comparisons were impacted by the COVID restrictions that remained in place during the same quarter of 2020. Given the unusual nature of last year's quarter, we think looking at year-to-date comparisons is more useful. Year-to-date for the nine months ending September 30th of 2021, Revenue was up 4.7% to $215.5 million versus $205.9 million during the same period last year. As Andrew emphasized, we're focused on positioning the company for long-term expansion. However, it's also worth highlighting that we are keenly focused on improving our margins. Through the first nine months of 21, our cost of sales as a percentage of revenue improved from approximately 34.1% last year to approximately 32.4% this year. R&D, and G&A were all up year-to-date as a direct result of the Bingo launch, Kingdom Boss development, and SPAC transaction costs. We generated $9.6 million of adjusted EBITDA for the quarter and $27.6 million for the nine months year-to-date. It's worth noting that the most recent quarter includes the ongoing investments in product development, live ops, and user acquisition to support our Bingo launch, along with the continued carrying costs of the Kingdom Boss effort, as we work towards its introduction later this year. Looking at the key operating metrics for our platform, we saw an increase in our loyalty program activity as reward purchases returned to pre-COVID levels with 570,000 purchases in the quarter versus 288,000 for the same period last year, a 98% lift. This translated to total retail value of 37.4 million, a 169% increase over the 13.9 million for the same period last year. We also enjoyed a healthy expansion in the composition and amount of rewards inventory which increased 37% over the prior year to 518 unique rewards with a retail value of over 158 million, an increase of 153%. In addition, daily active users or DAU were 1.2 million and monthly active users or MAU were 3.6 million. down 15.7% and 12.7% quarter-over-quarter respectively, and down 16.9% and 6.4% sequentially. Average revenue per daily active user, or ARPDAL, was $0.65, up 20.4% quarter-over-quarter, and up 5.3% sequentially. And daily payer conversion was 2.8%, up approximately 40 basis points quarter-over-quarter, and up approximately 10 basis points sequentially. Turning to the balance sheet, we ended up the quarter with approximately $226 million of cash. In addition, as we previously announced, we have a $75 million five-year secured revolving credit facility with a company option to increase the facility for up to an additional $75 million. The revolver remains undrawn. At the close of the quarter, we have 126.9 million total shares of Pelman Stock outstanding. Based upon our available cash resources, we believe that we are very well positioned to execute our multi-year plan and address key priorities of diversifying our game portfolio and advancing our loyalty platform model. And as Andrew mentioned, with the Board's support, we're now poised to execute a stock repurchase plan should we deem it appropriate. I'd like to touch on guidance and reaffirm our overall approach. We plan to continue to provide a range of expected annual revenue and update it each quarter. We expect to initiate guidance for any upcoming year when we report the fourth quarter and year-end results of the prior year. With that said, and largely due to the further delays with Kingdom Boss, which we had previously anticipated to launch earlier this year, we now expect 2021 revenues to be between 282.5 and 287.5 million, representing year-over-year growth of roughly 5.6% at the midpoint. In addition, we are reaffirming our expectation for full-year 2021 adjusted EBITDA to be between 35 and 40 million. Our guidance reflects modest growth from my Vegas bingo, and no contribution from King to Boss given the targeted end of year launch time. With that, I will pass it back to Andrew for some closing remarks. Thank you, Scott. So there you have it, an update on our financial performance, a brief review of our market and the conditions we're working through, a reaffirmation of our strategy and its merits, an overview of our operating environment and the investments we're making and expanding our output, an earnest sense of where we're going and why we remain optimistic about our opportunities, and insight into my deep conviction for our plans is evidenced by my implementing a 10b-5-1 program under which I'll be buying stock in the open market. Before I wrap up, I want to quickly acknowledge and thank my Team 1 and the nearly 500 playmakers around the world that remain so deeply committed to our vision and plans. With that, I thank you all for joining us today, and we're happy to answer any questions. Operator, please open the line for questions.